Tesco: Analysis of Internal and External Factors and Business Strategy

This report provides a comprehensive analysis of Tesco's business and its environment. It begins with a PESTLE analysis, examining the political, economic, social, technological, legislative, and environmental factors impacting Tesco's operations. The report then delves into a SWOT analysis to identify Tesco's internal strengths and weaknesses, as well as external opportunities and threats. Furthermore, it applies Porter's Five Forces model to assess the competitive landscape, including rivalry, potential entrants, buyers, suppliers, and substitutes. The analysis highlights Tesco's strategies, market position, and responses to various challenges and opportunities. The report also discusses the macro-environmental factors influencing Tesco, such as economic conditions, taxation, and technological advancements. It concludes by summarizing the strengths and weaknesses linked to external macro-factors and their impact on Tesco's business performance.

BUSINESS AND BUSINESS ENVIRONMENT

Table of Contents
P5. Analysis of internal and external factors in identifying Tesco’s strengths and weaknesses....5
P6. Strengths and weaknesses linked to external macro-factors....................................................8
Reference list:................................................................................................................................10

Part 2
P4. Positive and negative impacts of the macro environment on the Tesco’s business
operations
Tesco, the multinational food retailing company holds title for the second largest retailer after
Wal-Mart, with its stores in twelve countries. Apart from food retailing services, it expands its
business providing finance, hardware services, insurance, mobile, non-food products and others
as evaluated through PESTLE analysis of Tesco (Wood et al. 2016).
PESTLE analysis:
Pestle as an external factor, with its disadvantages allow multiple advantages on Tesco’s
business organization by providing a simple and easy-to-use framework. The positive aspects
involves cross-functional skills and productivity, encourages strategic thinking within its
operation, reduces potential threats, provides successful mechanisms enabling effective work
production in identifying multiple job opportunities, finally, entering new markets globally
(Karim et al. 2015).
Political factors:
As Tesco functions across national borders, political factors affect the business operations and
performance of Tesco. The political factors include tax, security of country Tesco operates in.
Tesco’s operation and management is influenced by the acts of legislation and country’s rules
and regulations that it seeks to operate. Increase of VAT rates affects negatively the revenue of
sales produced by Tesco (Zubizarreta et al. 2017). The ultimate source of income of Tesco is its
sales revenue; therefore, the outcome follows the profit margin. Alarming threat of illness affects
the sales revenue of Tesco, for which government of UK suggested in embracing control of
obesity and medical issues, to which Tesco introduced a healthy food range in the year 2014.
Tesco provides job opportunities for the mass that include students as well as elderly people,
creating jobs for domestic population and helping the stabilization of finance. With Tesco’s
employment opportunities, it even upholds and encounters huge demands of products resulting in
the diversification of workforce.

Economic factors:
Economic factors affect Tesco’s business operation influencing its costs, profits, demands and
price. The decrease in the effective demand of certain products is affected by the unemployment
structure resulting in low-production of such goods (Wood et al. 2016). During economic-
recession, unemployment increases, as a result, it reduces disposable income and allows
customers in buying cheaper products. Tesco should be aware of any change in policy and
regulation, price-rates and taxation that might affect the approachability of finance. The two key
business strategies that are internalization and diversification helped in Tesco’s progression and
advancement (Lee and Vachon 2016).
Social factors:
Society is a major macro-level environmental factor affecting Tesco’s business operation.
Customer’s demands of products and goods are affected by their belief and social attitudes. The
beliefs and attitudes are governed by social conditions, as people are concerned about health
issues more that determine their selection of products. Tesco thus tries to adapt the change in the
mode of demands of customers, producing more of organic goods. Tesco examines that there is a
gradual shift from bulk shopping toward limited shopping or one-stop shopping, which
inculcates in the production of non-food products (Zubizarreta et al. 2017).
Technological factors:
Technology enhances the advancement of Tesco’s production of new products. Technology
helps in mass production with the wants and demands of ready availability of products.
Therefore, the technological factors benefit both the customers along with the organization.
Customer is satisfied through efficient service response, for which Tesco stands as the second
largest retailing company, implementing its best strategies on workforce and productivity. With
the use of wireless devices, electronic shelf-labeling, electronic funds transfer systems, electronic
scanners, radio frequency identification and self-check-out machine, Tesco becomes successful
in its operation (Karim et al. 2015). These factors acknowledge Tesco’s efficiency of distribution
and stock activities.

Legislative factors:
The policies, rules and regulations, legislations established by the government impacts the
business process of Tesco. The factors include unnoticeable price alterations, demands of
payments from suppliers, untimely practices and others (Prajogo, 2016). In addition, there are
powerful competitors against Tesco creating threats in the form of price-rates where there is an
equal competition of rates of products, thereby, associating with strong differentiation of
products. Therefore, Tesco lowers prices on fuel-purchased goods and promoted goods, on the
other hand raises price elsewhere in the store.
Environmental factors:
Tesco has been acknowledged for its responsibility towards the society it operates in, both
national and foreign. Tesco looks out on the effects of global warming and restraints its operation
being affected from it (Iles, 2007). Tesco is trying against the steady utilization of energy and
greenhouse gases, aiming in protecting environment. It is examined that Tesco helped in
reducing carbon footprint and waste products and increase an awareness of social commitment
among its employees.
P5. Analysis of internal and external factors in identifying Tesco’s strengths
and weaknesses
SWOT analysis
Strength:
Tesco being a large retailer in UK, with competitors worldwide, possess the largest market share
generating considerable revenues in effective manner. Tesco has full command over the sales
channel that increases beyond the market expansion despite any decline (decline in overall sales),
positively affecting heavy utilization of online sales-channels in the ongoing marketplace (Bull et
al. 2016). For instance, in the year of 2015, Tesco’s online development grew with 20 percent
despite facing pre-tax loss of Great Britain Pound 6.37 million in the same year. Clubcard
benefits Tesco on various levels. It is used as an effective tool in increasing consumer purchase-

process, consumer loyalty. This is done by adding one point in the Clubcard of each customer for
respective Great Britain Pound spent (Rothaermel 2016). The Clubcard helps in assessing
consumer behavior and feedbacks, implementing them in altering and advancing their products.
The Brand (Tesco) or the company property itself increases its annual sales revenue (Prajogo
2016). The establishment of Tesco’s strong portfolio helps the company in gaining huge
financial resources in dealing with any immediate emergency, and this is done by selling a part
of its property.
Weakness:
As examined, Tesco underwent a weaker performance in the previous year and in the year 2009
as compared to its brand competitors. Tesco was affected by the replacement of number of
products, recalling of its goods that affected the finance and sales revenue creating an ill
reputation of the brand (Bull et al. 2016). The company’s significant operations take place in UK
where the recorded revenue of seventy five percent during the fiscal year of 2009, resulting in
the diversification of location and systemic risks in the overall Tesco market effecting highly the
market of UK, counted as a weakness for Tesco.
Opportunities:
With the popularity of Tesco, it creates opportunities of job for a large group of people and
attracts millions of customers, accounting 1 million of customers in the year of 2010. Such
opportunities allow profitable functions focusing on a global expansion. The diversification of
geography allows the company to improve its price-rate and economic scale, minimizing the
possibilities of risks (Anderson and Abensour 2017). Tesco’s mobile has outgrown among
millions of customers in 2015, following major development and expansion in technological
area.

Threats:
There is a shift in price architecture of Tesco by the credit crunch that lowers available income,
affecting the strategies that need to change lower-priced common goods, focusing less on the
high-priced goods. There has been an inconsiderable cost-growth of raw materials affecting
negatively the profit margin of Tesco (Crane and Matten 2016). Exporting restrictions in specific
food-products reduces Tesco’s margin rates on products allotted already low margins.
Consumer’s change in demand and behavior is a major threat for Tesco’s business operative
system. With the change in technology and social conditions, consumer’s patterns differ that
result in product area evaluation and alteration.
Porter’s five forces:
Rivalry:
Rivalry or industrial competitors state several factors such as cost differentiation, product
differentiation, capacity, output, growth of company and its market, sales revenue. It is important
in indentifying Tesco’s competitors (Dobbs, 2014). Rivalry increases growth rate, therefore, it
affects both positively and negatively. With the growing competition, Tesco never fails in
indentifying the best quality products and implements essential strategies in meeting such
rivalries.
Potential entrants:
Distribution channel creates multiple modes of entry. It creates complexities among already
established chains in the channels of distribution. In addition, the economy-scale signifies that
more number of economies indicates less threat of entry, that is, entrants are unable to get
maximum market share, causing major-cost disadvantages (Dobbs, 2014).
Buyers:
It is widely acceptable by the customer’s to deal and purchase from a number of suppliers, as it is
economically feasible, but it does not occur with Tesco as it does not allow multiple mode of
supplies. Tesco is economically profitable through the purchase from one retailer instead of a
host of retailers.

Suppliers:
In Tesco, there is an advantage of dictatorship over price of products, as well as in allotting
payment of the supplier as suppliers. For instance, if retailers refuse in paying the price the
former has asked, they will not be left with any option other than to sell. As this is the only way,
the retailer would be able to save and sustain its small-market chains (Iles, 2007).
Substitutes:
The availability of effective substitutes of any product allows ceiling of prices that the producers
of same product would charge, unless any seller of same product would update and upgrade its
quality, in turn reducing its cost or differentiating the product with its substitutes. However, this
allows a major opening for Tesco in improving the quality of its product ensuring better
performance over its competitors (Lee and Vachon 2016).
P6. Strengths and weaknesses linked to external macro-factors
Tesco under the external environmental factors experiences several changes. The company
cannot control the aspects of external factors, but can respond to such changes, in bring out
proper management and business operation (Pawliczek and Rössler, 2016).
Strength:
 With the everyday reports of economic conditions, with the help of media enables the
company manager to gain full information about economic conditions prevailing. This
helps the manager in forming strict strategic plans and policies.
 The market condition changes rapidly with major turnovers. This leads to constant
competition, however, allows Tesco to recall the existing and alter modes of productivity
in heralding business expansion. This helps the company in the betterment of its
product’s quality and quantity (Bull et al. 2016).
 Taxation under legal external factors assumes both strength and weakness of any
company. Some taxation occur after plenty of years giving time to the company in
preparing proper and effective business.

 With the establishment of internet media, that is undergoing rapid change and success.
The business of Tesco is conducted online that constraints time and allow business to
grow faster with the connection and loyalty of customers (Grefrath et al. 2017).
 Opportunities are driven by external factors. By using external factor analysis as
PESTLE, opportunities can be found and strengthen Tesco’s business model. With the
opportunity of technological trend and new social media channel, Tesco is benefited in
building a marketing strategy against its competition.
 If external factors enable the understanding of political, social, and economic factors, it is
used for analyzing specific products, customer relationships and marketing plans. For
instance, if a country faces an increase of fifteen percent of population within a certain
city, it affects the business roundly (Dobbs, 2014). It affects both positively and
negatively, but if there is an increase in elderly citizens and the company targets the age
within 20-30, then it provides a chance to deliver its product to the newer group of
population, enhancing efficiency and productivity.
Weakness:
 Certain increase in the rate of interest and unemployment leads to lower utilization and
consumption of specific goods and services. For instance, people undergoing financial
crisis would spend on cheaper goods, and tends to spend less on sport accessories, cars,
luxurious goods and others, therefore, financial crisis can cause changes in the external
environment that can be non-profitable.
 Technological advancement and changes are rapid, as a result, it is the company’s major
concern in keeping up with the regular changes to adapt sufficiently to technological
change and reduce the market risk. It affects not only the production process, design of
products but also the distribution channels and delivery process (Anderson and Abensour,
2017).
 Similar to the changes in law, changes occur in governmental policies without
notifications or warning. For instance, the company’s dependence on government’s
financial assistance, are affected by such change, as certain funding assistance may
disappear without any warning and notice.

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