Analyzing the Macro Environment and Internal Capabilities of Tesco

This report discusses the appropriate framework to analyze the macro environment and internal capabilities of Tesco. It also evaluates the competitive forces in the market using Porter's five forces model.

Business Strategy (RQF)
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Contents
INTRODUCTION...........................................................................................................................3
LO1..................................................................................................................................................3
P1 Discuss about the appropriate framework to analyse the macro environment for Tesco.......3
LO2..................................................................................................................................................6
P2 Applying the appropriate framework analyse the internal environment and capabilities of
Tesco............................................................................................................................................6
LO3..................................................................................................................................................9
P3 Describe about the Porter’s five forces model and evaluate the competitive forces of give
market for Tesco..........................................................................................................................9
LO4................................................................................................................................................12
P4 Strategic Plan........................................................................................................................12
CONCLUSION..............................................................................................................................15
REFERENCES..............................................................................................................................16
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INTRODUCTION
Business strategy can be defined the planning and implementation of different process
which help for achieving the suitable goal and objective. The leading organization is mainly
developing, implementing the various strategies by analysing the current market trends. These
are directly impact on the business processes in term of growth as well as development.
TESCO is based on the British Multinational groceries and other general merchandise
retailer in the marketplace. It is to be considered third largest retailer so that it can easily measure
the world by revenue generation. The organization was founded in 1919 by Jack Cohen which
mainly called as group of market stalls.
The report will discuss about the different framework to analyse the macro environment
for Tesco. It will describe about the appropriate framework analyses the internal capabilities and
environment of Tesco. Furthermore, the documentation will explain the Porter’s five forces
model which is mainly useful for evaluating the competitive forces in the marketplace. At last, it
will describe the wide range of concepts, theories and other model that will help for interpret
with strategic planning within organization.
LO1
P1 Discuss about the appropriate framework to analyse the macro environment for Tesco.
Tesco is a leading company that offering various groceries product and service in global
marketplace. It has expanded the globally since the early 1990 with operations in 11 countries
(Anderson, 2019). Tesco has stated vision, objective and mission for enterprises, thus company
has been appointed the various qualified staff those supporting as well as encouraging enterprises
activities.
Mission:
The mission of Tesco is to emerge with market leader in the super market chain across all
around the world. The organization is mainly concerned about the improvement in product as
well as service. In order to maintain the best quality of service and meet the expectation of
customers (Hsieh, Ma and Novoselov, 2019). In additional, Tesco is looking for continuous to
develop the innovative idea that will give the competitive advantage.
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Vision:
The vision of Tesco is to develop for motivating and inspiring in term of future growth. It
also helping for people to perform the different task effectively and efficiently. The primary aim
is to develop more efficient products which always influencing the customer in decision-making
(Bentley-Goode, Omer and Twedt, 2019). On the other hand, another vision of organization is to
be leader in groceries industry by 2020 and beyond. Management always working on the specific
vision of enterprise by increasing the production and standards through advance technology.
Objective:
 To increase the enterprise productivity as well as profitability in marketplace.
 To improve the use of advance technology in term of new as well as existing items.
 To establish the strong brand image.
 To sustain and encourage the market position by performing the corporate social
responsibilities activities.
Goals
Generally, Tesco is working on the basis of specific goal and objective. In order to
develop the effective plan, strategies to achieve the goal of organization. Tesco has focused on
identify the goal when increasing the sales, market size. In additional, Tesco has expanded the
enterprise size by starting joint venture with local companies.
Analytical framework of macro environment by using PESTEL
Pestle analysis is based on the tool or platform that mainly used for analysing the
unpredictable environment in which Tesco operates by explaining the factors and their affect on
the business performance. In Tesco, strategic planning manager often used as fact-finding
activities. it always helping for organization to establish the external factor. It could help for
business decision-making. In order to identify the current business position in global
marketplace.
 Political Factor: Tesco is operating in different nations which mainly including Asia and
Europe. It has exposed to various political factors that can affect on the operation and
function of Tesco (Bıçakcıoğlu, Theoharakis and Tanyeri, 2019). This factor include tax
rates, impending legislation, unemployment, economic condition and political instability.
For Example- The import duty on good that directly affect on the Tesco due to their
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inventory from outside in UK. On the other hand, there will be large tax rate which are
usually proposed by local council.
 Economic Factor: This factor may impact on the Tesco because it consider the labour
cost which become important. It can affect the UK supermarkets. The annual wage bill is
amounting GBP 2.3 billion. In order to increase the minimum wage rate by 4.4%. In this
way, it automatically upwards the price/ cost of Tesco in UK. Another way, it should be
considered the different factors that effect on Tesco such as price, profits. Tesco always
focused on increasing borrowing price so that it will be increase price and decrease profit
rate. It directly effect on the current brand position and reputation.
 Social Factor: In this factor, the demand, trend of customer are constantly changing over
time. Many people have faced the tough situation and want to flexible product return
policy. Many customers are preferred one-shopping so that Tesco relying on UK client
because they can understand the demand of people. In order to maintain the service as per
requirement (Chegini and Mahmood, 2020). In this way, it can easily related the client
attitudes, belief which consider as another forced issues or problem. Tesco should avail
this opportunities by developing the better relationship with existing consumers.
 Technological Factor: After few years, Tesco was facing the issue or problem due to poor
customer experience. But now technological advancement has increased the new
opportunities for Tesco. In order to regain the client trust. In some situation, Tesco has
embraced with modern technology that will increase the opportunities by adopting the
available retrial techniques (Hsieh, Ma and Novoselov, 2019). Tesco has developed the
online payment system which providing the better facilities for customers. It became
convenient for consumer to store personal information without any privacy issues.
 Environmental Factor: Tesco has been faced the issue related the immense pressure from
government agencies to address the environmental problem. The organization is liable to
respond to different issues within benefit society. Nowadays, Tesco always encouraging
the consumer to shop the item which drive to use fuel saving routes. But in most of cases,
it also collecting the unwanted the plastic bags from the client and also recycled them
(Hsieh, Ma and Novoselov, 2019). On the other hand, organization also committed to
apply renewable source and also generating 100 percentage of electricity.
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 Legal Factor: In context of legal environment, Tesco has followed the proper rules and
regulation so that provide the better equal opportunities for employees. Gender
discrimination is the most common issue in the workplace. In this way, many employees
were extremely frustrated. So as legislation will help for maintaining and controlling the
working environment.
LO2
P2 Applying the appropriate framework analyse the internal environment and capabilities of
Tesco.
Strategic positioning refer to the business achievement in term of goal and objective. In
order to find out the desirable result of Tesco. It is important for understanding the current
consumer need and requirement. In this way, it may prefer to develop the best quality of product
as well as services accordingly. Tesco has variety of item and service which may include
different class people (Danso and et.al., 2019). On the other hand, strategic positioning in market
so that Tesco consider the various factor and internal element that provide the brief idea to make
sustainable plan. Furthermore, it can easily expanding the business operation and function in
global world.
SWOT analysis is based on the tool or platform that mainly used in TESCO to study about
the internal environment in which organizations operate.
Strength
 Tesco serve the wide range of existing client which may include various equipment
brokers, homemaker item and other groceries. It is the major strength of enterprise
whereas depending on the single client segment. Tesco has captured the British market as
increase the revenue.
 Supplier plays important in the business operation and function. Tesco has followed the
effective simple enterprise model which can easily reduce the price by having efficient
waste management (Hsieh, Ma and Novoselov, 2019). In this way, it can be identified the
effective relationship with other suppliers. In order to deliver the product as well as
service on the specific time.
 The overall performance of Tesco is not limited and also won many awards. Another
reason for popularity among the different public that Tesco has been creating the
employment opportunities for people.
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Weakness
There are different current weakness of Tesco which directly affect on the business
performance and efficiency.
 Tesco has expanded its enterprises but organization has to shut down all of physical
stores. In this way, it could not export the business operations and also executing the plan
effectively.
 The profit of Tesco has seriously affected due to the high credit card. The organization
use the debt for purpose of their benefits, advantage by increasing the profit. In some
situation, it automatically reduce the profitable rate (Jansson, 2020).
 In Tesco, the operational performance of physical stores that have been lower which is
mainly representing the market position. It is not doing sufficient ground research before
starting the physical new stores.
Threat
 The national economic factors such as regulations, taxations and regulation that has been
considered the serious threat to growth. In order to identify the entire performance of
Tesco in other countries. The organization has to be very creative but it may affect due to
economic crisis (Bentley-Goode, Omer and Twedt, 2019).
 Tesco has used the different advertisement channel for promoting the wide range of
product as well as service. Nowadays, it has rapidly decreasing the demand of business in
market because of misleading the existing client through brand name. if in case, it has
occurred the trade which seriously impact on the entire business of Tesco.
Opportunities
There are major opportunities for Tesco that improve its current performance in future.
 Tesco has launched the new discount physical store and provide the best quality of offers,
discounts. In this way, large number of customer attracts towards services. The
organization should invest more in it because they want to grow the enterprise and
compete with other low price rivals such as Aldi.
 Tesco has expanding the business operations across the multiple countries but it is
emerging different markets such as South Korea, turkey and Indonesia.
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 In recently, Tesco has launched the new mobile application for online buyers. It should
upgrade on regular basis. Another way, it also adding the features which always attract
the more consumers towards Tesco.
Analysis of strategic capabilities by using the VRIO/VRIN framework.
VRIO is based on the framework which mainly used for purpose of analysis. It stands for
valuable, rare, Inimitable and organised. Tesco can use this framework to analyses internal
resource which help for exploring and protecting their resources. In order to utilise and gain the
long-term competitive advantage.
Valuable
Tesco analysis is mainly representing the financial which are highly valuable in term of
investing into external opportunities. Sometimes, these will help for combating with other
external threats. In this way, VRIO analysis shows that Tesco employee are valuable resource to
the firm (Kong and et.al., 2020). On the other hand, it should be considered the distribution
network which become more valuable resource. It always helping for Tesco to reach out more
consumers. It ensure the greatest revenue for Tesco and also increasing the promotional activities
which automatically translate into sales.
Rare
The financial resources of Tesco has found to be rare on the basis of VRIO framework. In
this way, it has maintained the financial resources in the business operation and function. Local
food items are found which is not become rare as determined by Tesco (Kong and et.al., 2020).
In this way, it has increased the competition level in marketplace. The distribution network of
Tesco has become rarer which is not easily identified by VRIO framework.
Imitable
Tesco has faced the issues when they cannot easily imitable as identified by VRIO
framework. Sometimes, it is not allowed to imitate with other patented items. Similarity, it also
considered the different resources that are developing and getting patent from them which
become costly.
Organization
Tesco has conducted the financial resource which help for capturing the value as
determined by VRIO framework. It may consider the suitable resource which are becoming
strategically way to invest in right manner. In order to increase the great opportunities for
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business in global marketplace. Tesco can use the distribution network to maintain the
coordination with customers. It must ensure that various items are available in multiple outlets.
LO3
P3 Describe about the Porter’s five forces model and evaluate the competitive forces of give
market for Tesco.
Porter’s five force analysis is based on the strategic management model which help for
analysing and identifying the different level in term of profitability. In Tesco, the Strategic
planning manager is basically use the model to determine the competitive forces and also
influencing the business profitability (Hsieh, Ma and Novoselov, 2019). In some situation, it has
developed the effective strategy for enhancing the competitive advantage. In order to gain the
long-term profitability in marketplace.
Bargaining power of buyers:
Generally, TESCO server the best quality of product and service to their existing
consumers. The bargaining power of buyer is low in United Kingdom. Sometimes, it is very
difficult for organised in proper manner. Unlikely, they can better off when they switched to
other competitors. However, it analysis that bargaining power of customer is high because many
other competing retailer give similar offers. So as it easier for Tesco to compare with other one.
It may use the better strategy and keep its price low so that it become affordable for every class
people. In some situation, it may directly impact in the profitability. And potential consumers
like high quality of item that associated with low prices. People are opting to purchase the item
from discount stores.
Bargaining Power of Supplier
In Tesco, there are 2,500 supplier works together in UK, but these suppliers are not
significantly power on Tesco. Manager will be negotiating with multiple suppliers in order to
increase the profit margins. However, it should be mentions that Tesco has been accused of
bullying the various supplier over cutting price (Hsieh, Ma and Novoselov, 2019). The suppliers
have a low bargaining power because there are various suppliers exists in the supermarket.
Different non-compliant suppliers that can easily replace with another one. In this way, it is
important for understanding the power of Tesco which getting more item from different supplier
within reasonable price. In order to improve their profit value because it happen due to the loss
of suppliers sides.
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Threat of new entrant
In Tesco, Threat of new entrants are coming into market which is become lower due to
the requirement of capital. It is not require to worry about the certain new entrants and also enjoy
the large scale of economies. It would be required to have enough distribution network, money
and other expertise to explore the Tesco in marketplace. The threat of new entrant is low. The
organization have to offer the high quality of item associated with other competitive prices. In
order to attract the more customer. Thus, it would have provided the cheap product as well as
service.
Threat of substitute
Tesco has provided the wide range of product as well as service. it became easier for
selling the substitutes of majority in global marketplace. The threat of substitutes is very high in
groceries products. In this way, Tesco has potentially increase the substitutes which come from
different retailer in marketplace. It also offering the better items and providing service to
customers. For Example- in departmental store, it consists of different product within both
distribution to compete with other competitions.
Competitive rivalry
In Tesco, manager face the large number of intense competitive from other competitors
such as Sainsbury’s. It also provided the similar type of product as well as service in
marketplace. On the other hand, buyer can easily switch from other product and purchase in
marketplace. In this way, it directly affect on the sales rate (Hsieh, Ma and Novoselov, 2019). In
additional Tesco also faced the challenging issue due to competition level. Indirectly, it has
forced to Tesco to use discount, offers and attract the large number of consumers.
By using the Ansoff’s matrix
The Ansoff Matrix is based on the strategic planning tool that provided the better
opportunities for Tesco in term of business expansion. Usually, it has been implemented the
different strategies in the organization such as market penetration, product development, Market
development and other diversifications.
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Market penetration strategy
Tesco can use the strategy for selling the existing product as well as service in
marketplace. It is able to expand the business by using strategy. In order to increase the market
share, use of various items (Bentley-Goode, Omer and Twedt, 2019). Other competitive pricing
strategies that has been useful for implementing in Tesco. In this way, it offers the many product
with increasing sales and profit rate in marketplace.
Market development strategy
Tesco has been used the marketing strategies for promoting the various services. This
type of strategy is not worth and failed in some cases within organization. In this way, Tesco
move towards another conceptual way to achieve the business success.
Product development strategy
Tesco has continuously developed the large number of good and service. Afterwards, it
directly selling into marketplace. It has its own and sells both version into market segments. It is
very useful for adapting the strategies for maintain the product quality. The supplier of top brand
such as Tesco. It would have more power in other negotiations.
Diversification
This strategy is basically difficult for implementing in the Tesco. In order to sell the
product to new client. It became easier for targeting the client and attract towards the product,
services (Bentley-Goode, Omer and Twedt, 2019). Tesco has started the grocery enterprise and
diversified into different areas.
However, it is not completely worth that Tesco has failed due to the diversification
strategies. For Example- in 2016, Tesco has sold the product but they faced challenges due to
loss.
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LO4
P4 Strategic Plan
Objectives
 To increase the revenue by 20% in current financial year
 To expand the operations of Tesco in two countries
 To increase the sales on online platform by 10% before completion of current financial
year
 To reduce the cost of company by 15% in current financial year
In order to meet these objectives Tesco will require to developed appropriate strategies. The
strategic direction that Tesco can follow to meet this objectives are as follows-
Porter's Generic Strategies
Cost Leadership
This strategy includes that cost of Companies lowest in the industry. Tesco when apply this
strategy they will require to ensure that their cost is lowest the industry (Islami, Mustafa and
Latkovikj, 2020). This strategy will allow the benefit to get high profit margin compared to
average profit margin of the industry. This strategy can be applied to give extra benefit to the
customers of the company in form of reduced price of the products. Low price of the product will
increase the customer and with subsequently will increased sales of the company. The only
limitation of this strategy is that in this strategy cost of the company is lowest but this might
affect quality of the products being sold by the company.
Differentiation
This strategy includes that product of the company are innovative and unique. They are clearly
distinct from product of the competitor. Tesco when applied to this strategy they will be able to
sell products which are known as exclusive. On the basis of differentiation the company can also
charge comparatively high price for product.
Cost focus
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This strategy also functions like cost strategy. The difference in cost leadership and cost focus is
that in cost focus strategy Tesco will focus on a particular group of customers. This strategy can
also be applied to know impact of cost strategy that company will have.
Differentiation focus
This strategy also functions like differentiation strategy but the difference and differentiation
focus and differentiation leadership is that differentiation leadership focuses on broad market
where differentiation focus on narrow market (Viltard, 2017).
Strategic directions provided in bowman’s extended model are based on two dimensions
these are perceived value of the product service and brand and price of the product. The
strategies in this model are-
Low price and low added value
Hindi strategy price of the company is relatively low then competitors of the company. This
strategy includes low prices the percent value of product is also considered to be loo bye
customers. What is the reason that this is not an effective strategy to be applied by the customers.
Low price
This strategy includes that Tesco produces large quantity of the product which subsequently will
reduce the cost of the product and the product is also valued in its target market. This strategy is
comparatively better than the strategy in which price and value of the product both are low
because in this strategy company sell its product at low price which reduces profit margin of the
company but last output can compensate the low profit margin.
Hybrid
In this strategy company focuses on both tries as well as value of the product (Echchakoui,
2018). This strategy can be very effective when it is applied on regular basis and differentiation
element of strategy add high value to the product.
Differentiation
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The strategy applied by Tesco inverse that company will offer highest value they can and price
of the product remains at average level that people can afford high quality product at affordable
price. This strategy creates distinctive identity of the product in the market. Quality sensitive
customers are also ready to pay higher prices for the product.
Focused Differentiation
This strategy is suitable for luxury and exclusive products of the company in which quality of the
product is high and price of the product is high as well. This allows company to attain high profit
margin and company use targeted promotions in marketing.
Risky High Margins
This strategy involves that company charges high price for product which are considered to be
mediocre level in terms of quality. This strategy might help company to to gain high profit
margin for short term but is not suitable in long term.
Monopoly Pricing
This is a strategy in which company position themselves as leader in the company and day R the
only one to offer a specific type of product in the market. Company does not have any fear of
competition and customers have two choices they can either buy the product or not buy the
product.
Loss of Market Share
This is strategic position in which company is not able to offer products and services which are
valued by the customers (Desai, 2019). In this strategy price of the product is too high and this is
the reason that customer do not buy the product. Company in this situation adopt for a standard
price so that it can remain relevant in the market and in minds of the customers.
On the basis of environment and internal analysis of the Tesco and identifying and
understanding available strategic direction it can be considered that Tesco can apply
differentiation focus in terms of focused products with distinct characteristics and quality. along
with this Tesco also should adopt hybrid strategy in which accept products that are completely
under differentiation strategy other products are provided at affordable price and high quality.
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CONCLUSION
About discussion it can be concluded that external environment has several impact on the
business and this is why it is very important that before developing and implementing strategies
in the organisation its external environment is analysed. Impact of external environment comes
from factors like political economical social technological environmental and legal. Which all
are factors that cannot be controlled by the organisation but organisation needs to stay agile so
that they can utilise the opportunities on time and can also reduce the impact of the threats. Later,
this report discussed about internal environment in its capabilities on the basis of this it can be
concluded that to utilise the opportunities that are available in external environment it is
important that organisation has capabilities within it. Later this report discussed about
competitive admit of the organisation and on the basis of this it can be concluded that along with
external environment impact of competitive environment are also important to be e analysed.
Competitive environment consists of those parties which can affect the share of profit company
has in its industry. Some strategic directions were discussed followed by the analysis that Tesco
can apply in future.
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REFERENCES
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