Business Environment Analysis: Tesco and ASDA Case Study

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Business and Business Environment
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INTRODUCTION
Business environment comprises of various factors, internal and external which can affects
the growth, operations and profit of an organisation. These factors include workers,
customers’ needs and preferences. In this regards, present report will highlight the business
environment of different organisation and its impact on their business performance. Report
will include the analysis of macro environmental factors and its positive and negative impact
on different organisation’s business operations. Further, report will include the analysis of
internal strength and weaknesses of different organisation which leads to impact their
decision making. At last, report will highlight the interrelationship of strength and weakness
with the macro factors of organisations.
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TASK 3
P4, M3 Analysing positive and negative impact macro environment on business operation
and decision making
Macro environment factors are the external factors that are beyond the control of an
organisation. These factors can impact the organisational operations and performance in both
negative and positive manner. These macro environment factors can be identified with the
help of PESTEL analysis. It is the strategic tool which assists in analysing different macro
environment factors which can affect Tesco plc and ASDA’s business operations. In this
regards, Pestle analysis of Tesco and ASDA are as follows:
Figure 1 PESTEL analysis
Political factor: These factors help in determining different factors that can impact the long
term profitability of a firm in a nation or market. Political factors include the political
stability, level of corruption, trade and tariff regulation, tax rates etc (Whelan and Meaden,
2016). The increased VAT rate in UK can impact the sales and business performance of
Tesco plc and ASDA, as customer spending will get reduced. Tesco plc is operated in more
than 10 countries, the local government, legislative and political environment will affect its
business operation in that particular nation.
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Positive and negative impact: The political stability in UK allows the smooth business
operation of both ASDA and Tesco plc. However, increasing in tax rate will negatively affect
total revenue of Tesco plc and ASDA impact its business operations as well.
Economic Factor: These are the main concerns for both the organisation. The economical
factors such as inflation rate, savings rate, interest rate, foreign exchange rate and economic
condition affects the business operations of both the organisations. Although the Tesco is
growing internationally, it still depends on UK market where it acquires 30% market share.
Thus, its business operation will get affected by the economic condition of UK (Na, 2016).
Impact of Brexit has leads to economic instability in UK such as increasing inflation and
interest rate. It leads the consumer to switch to the lower cost products which affects the sales
and revenue of Tesco plc and ASDA.
Positive and negative impact: The recovery of economic condition from financial crises in
UK helps in reducing the cost of import which will increase the overall profitability and
effective business operations. However, increasing the labour rate and inflation rate is
increasing the cost of the business and affects it operation and profitability negatively.
Social factor: These factors include the changes in demographic and changes in consumer
behaviour, taste, preferences which affects the business operation of organisation. Consumers
in UK are becoming more health conscious and demands for organic and healthy food
products. It leads to affect the Tesco and ASDA as both are depend on the consumers of UK.
Tesco is adapting the operational changes to fulfil the demand of the organic products. ASDA
has adopted strategies to consider the needs and beliefs of growing ageing population in UK.
It helps them to meet the requirement of different consumer and maintain their market share.
Positive and negative impact: Accommodating the changing requirement of the customers
will lead to increase the sales and positive impact on the business operation
(Wongsansukcharoen, Trimetsoontorn and Fongsuwan, 2015). However, increasing ageing
population in UK leads to affects the customers demand and possess negative impact on the
operation of business.
Technological factor: Increasing in technological advancement and innovations provides
benefit to the different operations and helps in improving business performance. Tesco and
ASDA are required to adopt new technologies such as click and collect delivery services.
Tesco is using the technology to enhance its supply chain network to gain competitive
advantage over others competitors in market. ASDA has implemented online shopping and
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self checkout to satisfy customer and increase the revenue. Thus, both the organisation is
making use of the technologies efficiently to improve their business operation and
performance.
Positive and negative impact: Making effective use of the technology has positive impact
on both the organisation which will stimulate their business operations and business
performance in market. However, implement the technology is a cost burden on organisation
and also requires human efforts which can have negative impact on operations.
Environmental factor: These factors include laws and regulation related to pollution,
minimum wastage, carbon footprint which is essential for the firm to consider as it has impact
on the business operations. Customer’s demand is increasing to recycle the waste products
which are affecting its business operations (Jarratt and Ceric, 2015). Tesco and ASDA have
to operate in ethical and sustainable manner to provide value to environment and different
stakeholder to improve growth.
Positive and negative impact: Addressing the social responsibility helps the organisation to
build brand image which has positive impact on the business operations. On the other hand,
the requirement of the environmental issues likes reducing usage of fuel affects the business
operations which impact the manufacturing in negative manner.
Legal factor: Different countries have their own separate laws and legislation. There are
different laws and regulation which ASDA and Tesco plc requires considering in order to
formulate their business operations as per the rules and regulations of government. This law
includes the employment laws, food and safety law, Equality law. It is essential for the
organisation to consider these laws as it can affect the business operations and performance
of both the organisation. In UK, there are rules related to pricing policy such as changing
prices of products without notice can impact the operations of business (Wirtz and Daiser,
2017). Both the organisation requires meeting the laws in order to prevent from the negative
impact.
Positive and negative impact: Operating the business by addressing the entire legal
requirement will have positive impact on the business operation and performance in market.
However, breaches of any laws can leads to terminate the business operations or will leads to
pay high amount of penalty which will have negative impact on the business performance.
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Thus, it can be said that the different macro environmental factors have both positive and
negative impact on the organisational performance and operations. Tesco and ASDA can
make decisions to eliminate the negative impact of these factors and make use of the positive
impact as an opportunity to grow.
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TASK 4
P5, M4 Conducting SWOT analysis to determine strength and weakness and its impact on
decision making
Swot analysis is the marketing tool which helps in analysing the micro environment factors of
the organisation. It is an effective tool which determines the strength, weakness of the
organisation which can improve its performance through managing the opportunities and
threat for the organisation. This tool helps the organisation to make decision for their
operations and future growth.
SWOT analysis of Tesco
Strength: Tesco is the leading grocery retailer supermarket in UK which is its biggest
strength of being the higher sales and revenue firm in UK retail sector. Tesco has a strong
financial position in market and is a market leader with having more than 30% of market
share in UK. In addition, Strength of Tesco is its diversification with more than 6800 stores in
14 countries. It offers vast range of products and services to customers around the globe
which include clothing range, home-ware items, mobile phone, telecom and financial services
etc (Maak, Pless and Voegtlin, 2016). It has a huge workforce of more than 743000
employees in their different stores which make its largest private employer in Europe. It is
internationally recognised firm which is awarded for its operations and performance.
With effective goodwill and financial position, Tesco can make decision for its business
operations in different industries such as cloth merchandise and manufacturing sector.
Management can make decision to use their effective supply chain and distribution channel to
open stores in new market where they are not operating yet. It helps in attracting more
customers and increasing the market share.
Weakness: Tesco has to face various legal issues which include paying fine for
misinterpretation of profit in 2012. These legal issues affect the market reputation and impact
on its business operations. Tesco has also faced failure in U.S and Japan market due to failing
in exporting operation. It indicates the failure of Tesco strategies to perform in oversees
market. In 2018, Tesco has recorded 9% decline in its profit due to its reduced gross profit
which impact its business operations and performance (TESCO SWOT Analysis, 2019). The
financial profit of Tesco has got affected because of the firm’s high debt and liability in UK
market. The low cost strategy of Tesco can lead to reduce its overall profitability. In order to
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maintain the profitability of organisation, the management requires making decision such as
reducing the manufacturing cost which helps in increasing the revenue. Marketing team must
evaluate and done effective market analysis before entering in the new market.
Threat: Tesco has threat of increasing competition in UK retail market which is performing
equally well. Brexit referendum can pose the threat of different rules and regulation like tariff
and import duties. Tesco has faced criticism over the media advertisement which affects its
reputation. Economic crises in several regions have affected the business operations and
performance of Tesco. Another threat is the pricing strategy of different competitors like Aldi
and Lidl which are offers products on lower price, it forces Tesco to lower down its prices as
well.
Opportunities: Tesco is technology based organisation which continuously making use of
the new technologies to improve its business operations and performance. With strong
financial capabilities, Tesco should invest in its research and development in order to create
new products and ideas to sustain in very competitive market. It helps in attracting more
customers and increases the sales (Spieth and Schneider, 2016). Merger and acquisition is an
effective way which Tesco can use to overtake the competitors in different market. It allows
the Tesco to assess their business operations and technologies to establish in the particular
market. Tesco can also make use of the opportunity through upgrading its online shopping
services and home delivery services.
Competitors of Tesco: The main competitors of Tesco are Wall-mart which affects its
performance on international level. Being the market leader in UK, Tesco has strong
competition from Sainsbury, ASDA etc.
SWOT analysis of ASDA
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Figure 2 SWOT analysis
Strength: ASDA is strong name in retail trade sector. It is known for the value of money,
providing convenient and broad scope of merchandises at one place. It offers vast range of
products and services which includes financial services as well. Organisation is effective in
its marketing and promotional strategies which help in attract customers and increase the
sales. ASDA is socially active on the media platform and social network through which it
takes the feedbacks, suggestions from customers. ASDA has effective distribution channel
and has more than 500 stores (SWOT analysis of ASDA, 2019). The Company has good
reputation as it has start different CSR activities and operates its business in ethical and
sustainable manner. One of the strength is its focus in saving money and keeping the
manufacturing cost low which helps in maintaining its profitability. It can be said that with
effective market share and good image, organisation can expand its operations in Asian
market which provides new customers and increases in revenue.
Weakness: One of the weaknesses of ASDA is its ineffective global presence as compared to
its competitors. ASDA’s profitability is comparatively low due to its low price campaign. In
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UK, being the second largest retailer it faced decline in profit by 42%. ASDA has to face
strict restriction of government in some countries over prices of products and services due to
the fear of competition for local business effectively. ASDA has to make decisions related to
its pricing strategy.
Threat: UK retail sector is highly competitive ASDA has to face threat of price war from
other rivalry supermarket chains like Tesco, Sainsbury plc etc. ASDA has to face the pressure
of maintaining low cost strategy which affects its market growth. Impact of Brexit on
economic condition affects the consumer spending which affects the sales of organisation
(Kajalo and Lindblom, 2015). Organisation has to face various laws and regulation ion
countries which affects its growth and profitability.
Opportunities: Customers in UK prefer to shop online which is a great opportunity for
ASDA to start providing online shopping services and home delivery services as well. ASDA
can also open small stores like Tesco for the local people which provide convenience to
customers. In addition, ASDA has a great opportunity to expand its business operations both
in UK and in oversees market. ASDA can acquire small companies which help in expanding
the business in new market effectively. It can also merge or form strategic alliances with
different global retailers like Europe and China retail sector.
P6, M4, D2 Explaining interrelationship of strength and weakness with external macro
factors
It can be said that strength and weaknesses of an organisation has interrelation with the macro
environmental factors. Tesco and ASDA can effectively use its strength to grasp the
opportunities of external factors and overcome the weaknesses with positive impact of these
different factors effectively. Management of Tesco and ASDA can compare the strength of
the organisation with different external factors to make strategies and operational policies.
The interrelationship of strength and weaknesses with different macro factors are as follows:
Political and legal: The VAT rate in UK has increased which affects the sales and business
performance of Tesco plc and ASDA, as customer spending will get reduced. However, with
effective market and promotional activities of ASDA and Tesco they can attract customers
and maintain the sales. The low price campaign of ASDA will assist in overcoming the
impact of such factors. In addition, political stability in UK allows the ASDA to effectively
operate in country through complying the laws and regulation effectively (Aithal, 2015). On
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the other hand, legal factors such as different rules and regulation will help in making
strategies to prevent the negative impact of such factors.
Economical: It can be said that impact of Brexit has leads to economic instability in UK such
as increasing inflation and interest rate. It leads the consumer to switch to the lower cost
products which affects the sales and revenue of Tesco plc and ASDA. The strength of Tesco
of being a financially strong firm can prevent from the negative impact of such factors.
Management can make strategies to lower down the price and control the manufacturing cost
to maintain the revenue of firm.
Social: It includes the factors of changing demand of customers related to organic and
hygienic food which can impact the business operations. However, with effective financial
resources, Tesco and ASDA can invest in R&D to innovate new organic products to meet the
needs of the customers. With effectively analyse the customer preferences and demands,
Tesco can overcome from its weakness of failure in oversees market. Using the strength of
effective distribution channel, organisation can make available the products to customers in
different locations which help in increasing the sales effectively (Apetrei, Kureshi and
Horodni, 2015). If organisation fails to meet the requirement of the customers, the weakness
of organisation can impact the business operations in negative manner.
Technological: In includes the increasing in technological advancement and innovations that
provides benefit to the different operations and helps in improving business performance.
Tesco can invest in adopting the new technologies like enhancing its supply chain network.
ASDA also utilise the new technology like implementing online shopping and self checkout
to satisfy customer and increase the revenue. Increasing the operational efficiency with
technological factors will helps in increasing the profitability of organisation effectively.
Environmental: Every business organisation uses the natural resources of manufacturing and
producing foods and services. There are different environmental factors which can affect the
business operations and performance of organisation. The strength of firm can like being
active in CSR activities will helps in overcoming from the negative impact of the
environmental factors. ASDA has good reputation as it has start different CSR activities and
operates its business in ethical and sustainable manner that will helps to mitigate the risk of
these factors. Tesco has started initiative to reduce the carbon footprint by 50% by 2020.
With effective research and development, organisation can obtained substitute which
minimise the usage of natural resources.
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