Analyzing Macro and Internal Environment of Tesco

This report evaluates the macro factors and internal capabilities of Tesco, including the impact of political, economic, social, technological, environmental, and legal factors. It also analyzes the internal environment using the VRIO framework and the McKinsey 7S model.

BUSINESS STRATEGY

Table of Contents
INTRODUCTION...........................................................................................................................3
P1 Appropriate frameworks to analyse macro environment for Tesco. .....................................3
P2 Appropriate frameworks analyse the internal environment and capabilities of a given
organisation.................................................................................................................................5
P3 Porter’s five forces model and to evaluate the competitive forces of a given market sector
for an organization......................................................................................................................7
P4 Models, theories and concepts to assist with the understanding and interpretation of
strategic directions......................................................................................................................9
REFERENCES ...............................................................................................................................3

INTRODUCTION
Business strategy is the process of eliminating risk and running business successfully for
longer duration. It involves planning, set up goals and organize resources to execute the plan. It
highlights that how business should carried out to reach the goal. Tesco is the firm that offers
quality goods and services to consumers across the world. The agenda of this firm is to become,
market leader and serve consumers well.
This report will evaluate macro factors and how these elements affect operations.
Furthermore, internal capabilities of business will be examined.
P1 macro environment
Vision, mission and objectives of Tesco- The vision and mission of Tesco is to provide high
quality products and also to satisfy consumer wants, needs and demands. They also have a vision
to expand their market share by the year 2020. Company has the objective to provide groceries,
electronics and clothing goods as well as a number of their services online. Tesco are aiming to
develop the online shopping experience, if they are successful in doing so they may attract many
more customers which will help them achieve objective one.
Macro environment is unable to control by firm, it is so large and unpredictable hence
controlling is not possible (Linder and Williander, 2017). Changes in the factors have a direct
impact on industry and indirectly affect business as well. Their is a analysis of Tesco through
macro environment by Pestle analysis:
Political factors- It is the component that has great impact over business unit. Being a global firm
Tesco has to ensure maintaining business operations as per the regulation of particular country. If
regulations get changed then enterprise has to modify its operation otherwise it may get fail to
work better in the country. It may affect export and import activities that create problem in
generating sales in business unit.
Negative impact-Tesco also get affected by political factors, as it is having very big
supermarkets in which there are different types of product produced and political can affect such
products or whole supermarket industries. Changes in political government create problem
because it influences regulation which increases burden of tesco and rest other supermarket
firms.
Economic Factors-

This is the element that affect business activities to great extent. Inflation, deflation are
the key component that influence the working of business unit because it affect purchasing
capacity of consumers. If there is high inflation, then enterprise may get fail to attract new buyers
which will reduce sales of the company. On other hand if employment rate is high then tesco can
get benefit in attracting new consumers from the country. As high employment help in
improving GDP rate , if people have adequate income sources then they can have ability to spend
money in such products which raises profit of the Tesco and attract buyers. Such things influence
the working of Tesco and it has to get adjusted according to economic condition of nation
(Leischnig and et.al., 2017). But if interest rate is high then Tesco can not invest more hence it
affect the revenues of business unit badly.
Social factors- Social factors can include attitude, belief, thoughts and values of people that can
affect the individual behaviour. So company must make sure that they are not engage in
delivering any product which hampers the belief, thoughts and attitude of people. This will help
firm or organization in growing.
Positive impact- It can also help them in gaining goodwill in society. Company will be able to
attract more employees towards them. This will also help them in reducing the turnover which
company is facing in coming time. Tesco always ensure offering affordable products hence large
number of consumers take interest in its products that help in increasing sales of business unit.
Tesco was focusing on some other ways to earn advantaged in competitive market.
Negative impact- Tesco had to exit from the American and Japanese markets in 2012. Its failed
export operations forced the company to close stores in Japan after nine years and the US after 5
years. In 2017, Tesco was charged with fines due to the false accounting declaration and
misrepresentation of profits. As of Oct 2018, the share prices of Tesco fell more than 9% due to
the decline in operating profits. It has proved to be the worst performance for the company since
the Brexit Referendum.
Technological factors- Technological factor is one of the most important that needs to be
addressed by company. In this company must make use of advancing technology in order to

grow. They will also be engage in giving their consumers the advantage of following new and
advanced technology.
Positive impact- This will also make work easier of workers as advancing technology will be
very beneficial for them. This will help company in growing and attracting new consumers. By
this loyalty will be maintained. Tesco uses POS machines and also provides online payment
services to its consumers. These techniques help the firm in conducting smooth operations and
minimising operational expenses.
Environmental factors- There are various environmental factors that can affect the working of
company. Firm must make sure that they are not involved in creating any type of pollution while
they are expanding their market in new areas. This will help them in creating positive image in
market. This will also help company in increasing their market share. They can engage in
following the various environmental which are given by the government of United Kingdom.
This will also help firm in having competitive advantage. Tesco ensure to use natural resources
in effective manner, it fulfil its CSR responsibilities. This supports the firm in raising brand
image.
Legal factors- Legal factors includes the laws, rules and regulations that needs to be followed by
United Kingdom government. This will assist company in increasing their goodwill in market.
They must make sure that employees which are working in their firms have been provided with
safe and secure environment. They must not be engaged in providing them with hazardous
working condition. This will help them in retaining employees. It will create employee loyalty
and belongingness.
Negative impact- It will also help firm in growing and also competitive advantage can be gained.
They must also make sure that there is no discrimination exist in the firm. Employees who are
been appointed on the same post have same salary. There is no going back. There must exist
honesty and security in firm. Government has made changes in wages rate under employment act
which affects Tesco as it has to pay salaries to its staff as per the standard rate. This thing helps
the firm in retaining staff for longer duration.

PESTLE analysis can be considered as most important for company to grow and safe the form
external factors.
Porters Diamond Model: In order to analyse the external factors that can affect growth of firm,
Porters Diamond model has been used. This imcludes the following factors that company is
going to face.
Firms structure, strategy and rivalry: Tesco in order to grow internationally needs to change
their firm structure according to the laws and policies. This will support them in growing.
Company needs to analyse their domestic rivalries. As it has bene identified that more intense
domestic rivalry is the more Tesco can bring out innovative and creative products. This can help
them in internationally expanding their market and also it can help firm in gaining competitive
advantage.
Factor conditions- they also need to analyse factors which can affect while expanding into
international market. In this aspect Tesco must involve in knowing whether they have adequate
factor condition or not. They must make sure that firm has skilled labour, so that when the
uncertain situation arises these human resource can help firm in getting competitive advantage.
Demand conditions- They also need to identify the needs and demands of the consumers living
over there. In this Tesco must be involve in interpreting the demand and need of employees.
There must be chances that home country consumers are demanding more. So for this firm must
be involve in bringing out creative and innovative products and services.
Related and supporting industry- In this Tesco must also maintain better relationship with
other industries. Like for example they must be involve in collaborating with other industry so
that together they can bring out better and innovative products and services.
Government- Government of United Kingdom must be involve in bringing out those rules and
policies which supports company whether they are bringing out new products or new challenges.
This will help firm in achieving their objectives.

P2 Appropriate frameworks analyse the internal environment and capabilities of a given
organisation.
Internal environments- Internal environment is elements set that explains atmosphere of structure
of company. In Internal environment organization deal with the managing resources that are
human resources, physical resources, monetary resource, technology & others which establish
organization for executing or achieving a strategy.
VRIO framework is considered as one of the best strategic analysis tool. This tool is for
providing the help to organizations in protecting the resources which helps organizations in
achieving good and long term competitive advantage.
VRIO stands for Valuable, Rare, Inimitable and Organized.
Value:
Value is that thing which finds either customer is getting value from the product or not.
Every company make product for satisfying need of customers, if they are not satisfied they will
not purchase good. So VRIO framework says that if company will provide value to the customer
then only their product will attract customer to purchase it. It will also help in increasing
competitive advantage.
 Food products of tesco are valuable.
 Employees are considered as valuable resource of tesco.
 Distribution network of tesco is valuable.
Rare:
Companies with those products which are rare, and only some of the companies are only
having similar product also get good completive advantage. If company is selling such products
which are not available everywhere than it will attracts customer to purchase it. Rarity is a great
source for making product unique and famous. It helps company in analysing internal factors
which are limited with some of the competitors.
 Financial resource are rare
 Patents of this company is rare
Inimitable

For any company it is hard to imitate those product which are rare and provides great
value to the customer. So when product is hard to imitate then it will provide company
competitive advantage, as other are not able copy product. Imitate explains how one company
copy ideas and technology of other company, so VRIO wanted to explain that if company comes
with unique and different product then it will increase company's effectiveness.
 Local food items of tesco can not be copied.
 It is difficult to company employee management in the firm.
Organized: The last things of VRIO framework is recognized after getting the result that
company has passed value, rare and inimitable, requirements or not. If these three step are met
with the requirements of company, then now company will seem as organized company.
 Effective financial resource organiser is there
 Distribution network of the firm is very organised that helps the firm in suppling material
quickly.
Mckinsney 7s model.
This 7s model are describe in two parts hard and soft elements.
Hard elements are those which are very easy in identifying and also easily influenced by
management.
 Strategy: Strategy are formed by company to achieve the goal which its has formed.
Strategies are formed by management of company and which is a part of internal
environment. For achieving each objective company has to make different strategies.
Strategies is a way to achieve any goal. Organization is only successful if they are
making great strategies and applying it. Tesco has taken action to resolve problem of
capital expenditure, it has now concentrated on making all the products available for the
consumers so that profit can be raised and cost can be minimised. Strategy of Tesco can
act as a strength for them as they are involved in implementing innovative strategy to
gain consumers
 Structure: Structure of companies identified the way through which company works.
Division of activities and coordination mechanism are part of companies structure.
Structure also explain how top level is delegating the authority and responsibility. Tesco
has tall structure, there are 10 board members those who make all the decision for the

welfare of company. This can act as weakness because they need to make new structure
so that firm can establish their organization in changing environment.
 Systems: It describe how an organization will run their whole process of doing business.
System describes that how will company measure the performance and on which basis
they will give rewards to the employees of company. It has started evaluation of activity
performance which help in identifying mistakes in Tesco and taking right action on time
so that profit can be raised. System can also act as a strength as Tesco is making use of
advanced technology system to attract customers.
Soft elements
 Shared values: Shared values are those morale values which identifies that the values
which company wants to provide their employees, are they following or not. Shared
values give employees a way to follow good behaviour in organization. It shares goal of
company with employees, that thing develops confident and relationship of employees of
Tesco. The shared values by Tesco is also strength they make sure that no consumer is
being hurt by their thoughts
 Skills: Skills describes what is organization is capable of, when a company is having such
employees which are having good skills then the organization will have good competitive
advantage. Skills of employees give both equal benefits either organization or employees.
Tesco manage talent in proper manner and allot them work as per their capabilities. This
can act as a weakness as company must be involve in recruiting effective human
resources that can adjust to changing environment.
 Staff: Staff in organization defines about the human resource which are known as the
USP of any organization, if organization is having such employees which are creating
huge productivity then the company will easily achieve its target. Staff of Tesco are given
attractive pay and training so that they can get promotional opportunities soon. This can
also act as weakness as it has been analysed that staff of Tesco is not supportive.
 Style: It can be explained as what type of style are used by managers for handling
organization. There are any different leadership styles which are used by managers, and
this style describes that how business will run. Leaders of Tesco have democratic
leadership style, that develops coordination among all employees and help firm in

minimising staff turn in the firm. The management style is a strength as they are open up
to take advice from all other employees
P3 Porter’s five forces
. The analysis of five forces is quickly used to find and structure of industry to determine
allied strategy. The five forces are showing that how they evaluate the competitive force in
Tesco.
Threats of new entrants- new entrant can not come in this sector so easily as it required huge
investments, hence threat is very low for tesco. Everyone got attracted towards the profitable
market and this will also lead to attract new entrants and they have various ideas and if they will
bring new innovation in the market then customers will attract towards their store and products.
This will put pressure on the Tesco and rest of old stores because they can adopt some more
strategies to attract customers towards their products like lower pricing strategy, reduce in the
cost of products and give new value propositions to the attracted and all the customers. If
customers will purchase from their store then it is a promotion of their store and product
indirectly and this will be threat for the Tesco. Because this will bring more customers and old
customers of Tesco also. Tesco has to manage all the challenges and create effective barriers to
get safe from the competitive market or edge (Anwar and Hasnu, 2016).
Bargaining powers of Suppliers
There are many suppliers hence their power is low hence tesco can manage its supply
chain effectively. Strong suppliers in the services of the consumers sector use their bargaining
power to extract high prices from the company's in the field of retail. This whole impact of
stronger supplier on the bargaining power and it lowers the whole profit of the retail Tesco can
develop strong bonding with mass suppliers in order to deal with this issue. And if make changes
in the design of the product by using different material so if prices will increase then organisation
can shift another one. Develop a suppliers who are dedicated to their business and depends on
their business. Tesco and other companies are developed third party manufacturers whose
business is totally depend on them. Suppliers also create problems when Tesco purchase raw
material from them than this is the best way to overcome this problem that they have to be
connected with the multiple suppliers (Malerba and et.al., 2015).
Bargaining powers of buyers

Buyers have huge power, because they can switch to others hence tesco has to build
relations with customers so that they retain in firm. At the current time buyers have lots of
demand. They are wanting that they will get best offers in lowest price as possible. They don't
want to pay more and want a products in minimum price. This will results in putting pressure on
profit of Tesco for their long run durability. If customers base is strong then their bargaining
power will also have a strong base and the power of customers will lead in increasing offers and
discounts and this will create problem for the Tesco because if they had to decrease their prices
than they will face n profit or loss too. Customers wants every product in low price and they will
surely bargain for that product and this will seek in decrease in profits of the Tesco (Nohria,
2017). Customers will adopt so many different ways to bargain with the retailers and they will
bring huge crowd to make strong base and because of crowd in quantity will become a problem
for Tesco. Tesco can make profits and overcome this problem by bring something new in the
market and this will attract customers back to him and if they will able to make strong base of
customers for their product and this will raise their profits. By bringing new product time to time
will help organisation to control the customers and then they will don't have to offer discounts
and other things (Torrent-Sellens, 2015).
substitute products
Threats from substitute products moderate for tesco, hence this thing can not affect the
business performance. Organisation will face a new product or meet a same product and the
demand of that product is increasing in the market from the customers then this will make suffer
to the existing product because they launch same product in low prices and this will attract
customers because it was something new in the market and customers are willing to buy a new
product. The threat from the new product which substitute our product is high if it provides a
value scheme which is unique and different from the existing product which the organisation is
offerings. The substitute that can hamper Tesco is farmer or the firm that is dealing in fish
market. To overcome this issue organization can make new strategies so that they can overcome
the threat which can be derived from subsit(Anwar, 2019)
Rivalry
Competition is very high hence this creates threat for tesco. The rivalry against the same
or existing industry this will create a intense fight and it will led to decrease in the prices of the
products and services and it will result in the decrease in the overall profits of the Tesco. Tesco

handles in a competitive industry of retail and this competition or challenges does take a toll on
the whole long term profits for the company. If Tesco wants to tackle this rivalry against the
competitors then they have to build a sustainable differentiation and through create a scale that
will help to fight better with the competitors. The b est way to overcome this problem is hat if
Tesco will collaborate with the competitors than it will led to increase the size of market and
rather than just fighting for small markets (Orr and Pegram, 2017).
P4 Strategic direction
The first strategic theory is Porter's generic strategies. This theory consists of four
strategies :
 Cost leadership – In this strategy the target is to cover market with providing people
goods and services at less price. This strategy is for attracting customer which are
purchasing same product at high price. Cost leadership word itself says that providing
goods at lowest price as possible, as whenever customer purchase any product they
compare it with price provided by different companies. Tesco UK has a great name in
supermarkets so to deal with competitors Tesco is using these strategies to attract those
customers who are having low budget to purchase good. Tesco is having same product of
different companies with difference price rate so this makes easy for customer to
purchase good according to their budget (Madhushree, Kumar and Aithal, 2018).
 Differentiation – In differentiation the target is broad market but company come with a
unique product and services. Differentiation is necessary for each and every company as
everyone in world wants something new because new things or technology are the reason
of attraction. Either existing company or new company has to provide something new in
their products otherwise customers will not attract. Unique things are the first choice of
any customer as they find something new in it. For example Tesco is doing business of
supermarkets and it is doing this business from so many years so to get constant growth
and to make customer satisfied, it is must for Tesco to come with new and unique goods
and service otherwise it will impact Tesco negatively, that's why differentiation strategy
is must (Thomé and Medeiros, 20160.
 Cost focus – Cost focus is that strategies in which the target is clearly a niche market.
Niche market means targeting a particular segment or market which is small. Most of the

companies come with aim of targeting niche market, as company sometime target market
with age group, gender, or like particular industry. When a company targets particular
market it becomes easy to find out all the positive and negative things about the market as
company gathers all the information about it. Tesco had targeted the basic needs of
consumer that's why it is having all the products which is essential need of consumer.
Tesco used this strategy for attracting all type of public like any age group or any gender
people can come to their store and purchase the product. Applying this strategy Tesco has
made its goodwill quite good and now it is opening many other businesses as well. Tesco
firstly target small market and now coming to new businesses for achieving more heights
(Nadeem and et.al., 2018).
 Differentiation Focus – The organization use this strategy when they want to come with
unique product but for small market segments only. This strategy is applies by companies
when they want to attract particular market with their unique product. This strategy was
used by many companies. One of the very famous car company has use this strategy as
this company wants that only rich people can buy their cars, and they have release their
car with unique design and features for a target market only (Kitsios and Kamariotou,
2016). Tesco needs to take support of this tactics that will help in managing operations in
global market well because it will help in attracting more consumers and raising profit of
the firm .
These cooperate level strategies are used by company and company is using the differentiation
strategy for improving the product in market is affecting the sales of the company and
performance of company. Product are changed and improvised which are affected and it is using
the strategies which are used by them in the effective way. Product are improvised and unique
features are added in products which would change the image of the product in the market.
Bowman's Strategic Clock:
This clock comes with eight different strategies:
Low Price and Low Value Added(Position 1)
In this strategy company want to provide product at low price and which does provide
high value to customer as well. Organization wants that no one can cut their price that they are
providing, but they also not provide such type of product from which customer get so much
satisfied. As organization only focus on lowest and to provide the lowest price they have to

compromise with quality. Tesco is making available such type of product also, for the people
who can't afford high price product and this strategy is little in use of Tesco (Remane and et.al.,
2017).
Lower Price(Position 2)
In this strategy organization provide product with good quality but price they keep low.
In such condition profit margin is low but the sales is high. Whenever people purchase product
they want that price should be low and quality should be good so many of the companies use this
strategy to attract customer. Tesco is also using this strategy by providing customer such type of
product in low price to get benefit of making high sales and goodwill (Leischnig and et.al.,
20170.
Hybrid (Position 3)
Hybrid is that strategy in which organization provides good at low price with unique
features or differentiation. This strategy added good value as it impacts customers with two
things one is reasonable price and second is uniqueness. Tesco has applies this strategy to get
more and more customer and make Tesco number one supermarket (Torrent-Sellens, 20150.
Differentiation (Position 5)
The focus of this strategy is to provide maximum value to the customer. Whenever
customers is so much satisfied with the product or service they purchase become loyal to brand.
Tesco is applying this strategy very well that all the customers once visit their store becomes
very addictive to it.
Focus differentiation (Position 5)
In this strategy organization give high price to their products as they want such type of
customer who attracts from the price of product as they have to show high level of standard.
Tesco is also maintaining such products which are having quite high rate and also which attracts
the customer who relate value addition with price factor (Anwar, 2019).
Risk High Margins (Position 6)
This is that strategy which leads to companies failure as they do not provide anything
great but the price of product is very high. So Tesco is not applying this strategy as it will give
negative impact to it.
Monopoly Pricing (Position 7)

Monopoly pricing is the best thing which any business can have as they have no
competition, and they can set whatever price they want to set as there is no one who interfere in
it, and if customer is need of this product then whatever the price is, they have to purchase it.
Generally Monopoly market is run by public sector (Remane and et.al., 2017).
Loss of Market Share (Position 8)
When organization provides product whit standard price and it does not give any value or
minimum value to customer then it leads to loss of market share. Customer is mostly attract to
those products which give them high value, so product with less value always rejected by
customers.
CONCLUSION
This report conclude that business strategy is an actions that is generally used by a
business to for attracting customers toward their products and services and organisation will
compete successfully and make a strong performance base and through all this they have to
achieve organisation goals. It just highlights that how business can be carried to reach desired
ends. Tesco is a multinational retail store company which deals in grocery and clothing products
and services. This brief of report explain that what are the appropriate frameworks which helps
the organisation to make strategic plan and take decisions. Then it show that how SWOT helps to
increase capabilities of the Tesco and after this the Porters five model shows that how they
evaluate competitive forces in Tesco and the whole report shows that how all this models,
concepts and theories help to the organisation to increase profits of the company.

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