Global Business Economics and Finance: TESCO's UK and China Operations

This report provides a detailed analysis of TESCO, a multinational grocery and general merchandise retail store, focusing on its operations in the UK and China. It begins with a brief overview of TESCO, its history, and its market position. The report then examines the market structure in both countries, comparing the competitive landscapes and TESCO's role within them. Key macroeconomic indicators, including GDP growth rate, inflation rate, unemployment rate, and interest rates, are analyzed for their impact on TESCO's economic activity. Furthermore, the report delves into the monetary and fiscal policies of the UK and China, assessing their influence on the company's performance and financial strategies. The analysis includes discussions of monetary policy tools like interest rates and fiscal policy tools like government spending and taxation. The report concludes with a summary of the key findings and their implications for TESCO's global business strategy.

Global Business
Economics and
Finance

Table of Contents
INTRODUCTION ..........................................................................................................................3
MAIN BODY...................................................................................................................................3
Brief description of the company...........................................................................................3
Analysis of the market structure.............................................................................................3
Analysis of major macroeconomic indicators and impact on firm’s economic activity........4
An analysis of the monetary and fiscal policy It is the rate a bank or other lender charges to
borrow its money, or the rate a bank pays its savers for keeping money in an account........5
CONCLUSION ...............................................................................................................................9
REFERNCES:................................................................................................................................10
Books and Journals:..............................................................................................................10

INTRODUCTION
Business Economics is a field of applied economics that includes study related to
organisational, financial, environmental, market related issues faced by the corporations. It is
important to have knowledge about the business economics (Adekola and Sergi 2016). It is
important to know about the macro environment factors and their impact on the organisation.
This report is based on TESCO and its operations in UK and China. TESCO is a British
Multinational groceries and general merchandise retail store that has its headquarters in Welwyn
Garden City, England. In this report there is discussion related to the company and analysis of
market structure that is followed by company in two countries. Discussion related to major
macro economic factors and their impact on organisation's economic activity. Along with that
there is analysis related to fiscal, foreign trade and monetary policy of the two countries and its
impact on firm's economic activity.
MAIN BODY
Brief description of the company
TESCO is a multinational organisation that has its operations around the globe. It is
largest chain of supermarket all over United Kingdom. In addition to grocery stores, TESCO
have their operations in clothing, electronics, books, furniture, toys, internet services, petrol,
software, telecoms and financial services (Chang, McAleer and Wong 2020). The company is
third largest retailer in the world if measured in gross revenue. TESCO was founded 102 years
back in 1919 by Jack Cohen. TESCO provides employment opportunity to around 423,092
employees. The net income of company in 2020 was around £0.973 billion. The revenue of the
company is approximately around £64.760 billion. The company has a established image in
market.
Analysis of the market structure
Market Structure shows degree of competition in the market. The market for goods and
services can be determined through the degree of competition present in the market. Market is a
place where buyers meet sellers to purchase goods and avail service in return of money. There
are various types of market structures that are present. The different types of market structure are
discussed below:

Perfect Competition: This is most competitive market in which there are number of
buyers and sellers that buy and sell homogeneous products and services. Also the buyers have
option to switch the seller as there are direct competitors in the market.
Monopoly Market: It is a market situation where there is only one seller and there are
numerous buyers available for the product (Hampden-Turner and Trompenaars 2020). There is
barrier to entry in case of monopoly. The single supplier have full control over the market.
Oligopoly: It is a situation in which few firms sell goods and services. The products
offered by firms are homogeneous. In this the industry is dominated by small group of large
sellers. It reduces the competition in the market.
Duopoly: It is a special case of oligopoly where there are only two sellers that sell
independently and there is no agreement between them. No matter they are independent, change
in price and output affect other.
Monopolistic Competition: It is a market situation where there are number of buyers
and sellers that sell differentiated products and services. The focus is present the product in a
way that is better that competitors. The goods are not similar to each other, they are not perfect
substitute of each other.
In United Kingdom TESCO is an oligopoly as it is not the single supermarket. But
TESCO is a dominant player in the market of UK. There are various other firms that are in the
same market. TESCO has captured the market and is a leader in the market of UK. All the other
players in the market all have captured significant market share.

In China there is Perfect Competition as there are various companies and retail stores in
China that are offering the same products and services (Lin and Viswanathan 2016). There is
high competition in the market and the competitors are also serving similar products in the
market. There is need to innovate the product and service to gain advantage in the market.
Analysis of major macroeconomic indicators and impact on firm’s economic activity
Macro economic factors have impact on the economic activity of the firm. It affects the
economic growth rate. The macro economic factors and their impact is discussed below:
GDP growth rate: The Gross domestic product is growing in United Kingdom and there
is around 1.5 % annual change seen. This impacts the performance of TESCO. As the company
is also contributes to GDP of UK. In China there is around 2.3% annual change that is higher that
that of UK. This shows company is operating successfully and contributing to the growth rate of
country.

Inflation rate: The inflation rate in UK is rising rapidly and that impacts the the performance of
TESCO (Min 2016). As the spending power of people reduces due to rising inflation rate. In
China is increasing at a rate higher than that of UK. That shows the capacity of buy of people is
decreasing. That is not good for TESCO.
Unemployment rate: The number of unemployed people shows the unemployment rate.
This shows that people are not able to get job. The unemployment rate shows decrease in
profitability of the company (Monasterolo, Roventini and Foxon 2019). As it is decrease the
demand of products and services offered by the TESCO. The unemployment rate in United
Kingdom is around 4.7% and the unemployment rate in China is 4.7% as compared to 5.5% in
last year.

Interest rate: The rate at which banks grant loan to the organisation shows interest rate.
This also impacts the business of TESCO as the buying power of people and consumers vary
with the interest rate. It is important to know about the rate of interest. The Bank Of England has
set bank rate as 0.1% and that Balance of Payments in China is 3.85%. The interest rates are
higher in China.
General government balances: This shows the overall budget formulated to to show the
balance between revenues and spending of the financial year. It is important to know about the
general balance by government. In UK the primary objective of government is to manage the
economy. If it is balanced it will be beneficial for TESCO. It is -10.2 in China.
Balance of Payments: It is vital macro economic factor that impacts the economy of a
country. BOP shows the difference between inflow and outflow of money in the country. In UK
the account deficit is seen as 3.8% of Gross Domestic Product (Pacelli and Sica 2020). That
shows the country is in deficit. This shows that company is not earning more and more. In
respect to China they posted a surplus of SDR 55.5 billion in the current account and deficit of
SDR 16.9 billion in the capital and financial accounts.

An analysis of the monetary and fiscal policy It is the rate a bank or other lender charges to
borrow its money, or the rate a bank pays its savers for keeping money in an account.
Monetary policy is the use of monetary tools like interest rates to influence the level the
customers spending. These are the actions of central bank to influence the the flow of money in
the economy. The monetary tools that are used are Interest Rate is the rate at which banks lend
money to the customers, business etc. The monetary policy is set in terms of money and has
direct impact on the economy (Palley 2016). The monetary policy is in UK is managed by Bank
of England. If the interest rate is set high then the power of people to take loans reduces and if
the interest is low more and more people take money from banks. The flow of money increases
with lowering the interest rate. The monetary policy influences the working of firms that are part
of the economy. So the same will impact the operations and profits of TESCO. The main aim of
the monetary policy is to stabilise the economic cycle of the country. Every country wants to
have stability. The monetary policy of a place is very important to be set in a way that it helps to
lower down the inflation and to avoid the situation of recession. The aim aim of monetary policy
policy is:
 Lowering down the inflation: It is important as that will help to invest in long run. The
inflation rate is low the individuals of the country are able to sped and purchase more
with the amount of money they have. It is helpful for the country if the inflation rate is in
control. If the inflation rate is lower down. TESCO will be benefited as more and more
people will buy from the company. As the inflation is lowered down it is a situation of
advantage for TESCO.
 Stable economic growth: Along with that stability in economic growth will help the
country to keep unemployment low. This will help the country to employ more and more

people and will increasing the earning capacity (Peng 2016). The stabilised economic
growth has direct impact on growth of TESCO. Stability positively impacts the working
of TESCO and people will buy on regular basis and is beneficial for TESCO.
How monetary policy works
 The monetary policy in UK are set by Monetary Policy Committee of Bank of England.
That is a authority that take measures in relation to setting the monetary policy in UK
(Terry, Macy, Owens and Vinyard 2020).
 The set interest rate by targeting and meeting the the targets set by government to
inflation target.
 The Bank of England sets the base rate that si the rate at which commercial banks borrow
from the Bank of England.
Aspects of monetary policy
Loose monetary policy: They set target and plan to anticipate inflation to fall below the
target set by the government. If they see there are situation of recession they cut the interest rate.
As low interest rate reduces the borrowing power of individuals.

Tight monetary policy
It is the time when economy is growing and then government take measures to rise the
inflation rate. That is done by enhancing the inters t rate and that reduces the rate of economic
growth in the nation. As interest rate rises the consumer spending falls.
MPC announces the monetary policy 8 times a year. The committee has nine individual
members. There are various meetings that tell about how the policies are working. It is important
to set the monetary policy in such a way that it is beneficial for the nation and there is stability.
All this will help UK to have stable monetary policy that is set by Bank of England.
Fiscal policy refers to use of government spending and the tax policies that influence the
economic condition of a nation. It focuses on macro economic conditions that are aggregate
demand. The factors are like goods and services, inflation, employment, and economic growth
(Willcocks, Lacity and Craig 2017). In UK the focus is to change the level of taxation and
spending of government to influence and impact the economic growth. The is direct impact of
fiscal policy on the working of TESCO. As the company operates in the economy. There may be
adverse as well as positive impact of fiscal policy made by the government.
Expansionary fiscal policy: In this policy the task is to make changes in aggregate demand.
That helps to boost the rate of economic growth. This is very important for success of a nation.
The nations economic growth is the main aim for setting the fiscal policy. This shows that the
spending of individuals enhance. If the taxes are lowered down than it will result in high
borrowing by the country. This will helps at the time of recession or at a period of negative
output gap. All this is done to stabilise the economic condition of the nations. As the demand of

products and services gets enhanced TESCO gets benefited and the demand of its products and
services rise.
Deflationary fiscal policy: In this case the aggregate demand is reduced and that also reduces
the inflationary pressure. IT is opposite to the case that is discussed above. In this case the
government spending is reduced and there are high taxes. Under this taxes are reduced and
announce high spending. In this situation that the company faces problem as the government
controls the demand and it is adverse situation for TESCO.
Monetary policy in China is more complicated than that of UK. This focuses on interest
rate as the key instrument. The monetary policy is always made to control the flow of money in
the economy and to control the spending of normal individuals of the country. In China the bond
yields are to pass the policy changes and the conditions of the real economy. As the bonds of
government change with the market expectations. All this is complicated due to the history of
china.
It is also important to note that the central bank of China is not given independence. As
the bank is unable top take all the decision independently There are various decision that are
taken by the higher level. The banks are still state owned and the banks have to take instructions
from the policy makers. The complexity impacts the TESCO as the monetary policy is complex.
The changes in interest rate impact the economy and the firms that are operating in the economy.
The complexity creates problem for TESCO to operate there. The monetary policy has impact on
supply of the economy. All the work that is done by the firm gets impact and are influenced by
the changes in monetary policy.
Fiscal Policy of a nation shows that overview of public finance, the revenue and
expenditure of the country. Fiscal policy is very necessary for every organisation as it give a
great impact on economy as well as on organisation. In UK it is the budget that helps to each
sector for showing their cost and expenditure. It is actually a fund that raise by government with
the help of collecting taxes. They use this fund for the development of economy so that they can
formulate best strategies and policies in order to make the strongest economy. It gives great
impact on economy and that's why it is considered that it also give great impact on organisation.
It involves the budget set by the government. The fiscal policy changes the demand of goods and
services that are offered by TESCO. The company get a direct impact due to the changes in the

fiscal policy designed by the government. In China the policy makers Change the policy through
other channels.
Fiscal Policy Instruments
The expenditure of public include the government expenditure, subsidies of various
types, relief expenditures, transfer payments and social security benefits. The taxes reduces the
income that is spent by the consumers. Another important tool of fiscal policy is is to manage the
public debt. At the time of inflation the policy aims to control the aggregate spending that
impacts TESCO. The company faces problem due to inflation and as that reduces the spending
mower of buyer. At the time of depression the policy of government is in favour that people
spend more and more money.
Foreign trade policy instruments
The instruments of foreign trade policy have impact on the country. It has direct impact
on the activity of TESCO. As the company in part of the economy and any changes in the trade
policy will have impact on the firm. There may be negative as well as positive impact of these
instruments on the operations of TESCO. It includes exchange rates. The exchange in rate in UK
is 1.156327 and in China is 0.153576. All this has direct impact on the operations of TESCO.
Along with that TESCO has exited the Chines markets. The company has officially exited the
Chinese market following the US$357m.
CONCLUSION
It can be concluded that macro economic factors have direct impact on a firm. In this
repost there is discussion about operations of TESCO in China and UK. There is discussion of
various macro economics factors on the performance of the company. The monetary and fiscal
policy and there impact on the working of the place. Both the nations are different and follow
different policies. The impact of the policies and macro economic factors in also different in
countries. This is important to know these factors and be prepared for them.

REFERNCES:
Books and Journals:
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diversity in global business. Hachette UK.
Lin, M. and Viswanathan, S., 2016. Home bias in online investments: An empirical study of an
online crowdfunding market. Management Science, 62(5), pp.1393-1414.
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healthcare, supply chain, and finance analytics. FT Press.
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implications for economics and finance: An evolutionary economics
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Pacelli, V. and Sica, E., 2020. The Economics and Finance of Cultural Heritage: How to Make
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Peng, M.W., 2016. Global business. Cengage learning.
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