Business Strategy of TESCO: Macro Environment, Analysis, Planning

This report provides a comprehensive analysis of TESCO's business strategy. It begins with an introduction to business strategy and its importance, followed by an overview of TESCO. The main body delves into the influence of the macro environment on TESCO, utilizing a PESTEL analysis to examine political, economic, social, technological, environmental, and legal factors. The report then analyzes TESCO's internal environment and capabilities using a SWOT analysis, identifying strengths, weaknesses, opportunities, and threats. Furthermore, it employs the VRIO framework to assess the value, rarity, imitability, and organization of TESCO's resources. The report concludes with a strategic management plan, summarizing key findings and recommendations for TESCO's future. The report emphasizes the impact of Brexit, changing consumer behavior, technological advancements, and competitive pressures on TESCO's operations and strategic direction.

BUSINESS STRATEGY

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Business strategy is predominately the series of decisions which the organizations
undertake and perform the various actions in order to accomplish the gaols of business and attain
competitive advantage. TESCO is the British groceries as well as general merchandise being
established in 1919 by Jack Cohen and headquartered in England, UK. It mainly deals in
superstores, petrol stations, banks, telecoms etc.
This report gives a brief about influence of macro environment on organization, Analysis of
internal environment and capabilities of organization, Porter five forces and strategic
management plan.
MAIN BODY
Influence of macro environment on organisation
PESTEL analysis
Political factors
The political generally encompasses the political stability, tax rate, Government policy,
foreign trade policy etc that have a huge impact on the functioning of TESCO.
Negative impact- As per the view of Johnson, G (2016), the most negative impact which these
political factors have posed on the profitability and revenues of TESCO is the impact of Brexit in
UK. Due to this Brexit, there has been an increase in the price of food along with the devaluation
of pound. This has eventually made the import of food items much expensive for various food
retailers. Due to the decrease in the pound rate, the supermarkets in UK like TESCOI has been
pressurized to employ the expensive food retailers which are based in UK and this has eventually
affected the company operation and their strategic direction.
Positive impact- Although, these factors have impacted TESCO in negative way but somewhere
has also affected the company and has helped in expanding. The European Union generally
allows the free movement and flow of various goods and services between the countries who are
members and this has helped TESCO to expand and thus has provided them with a wide platform
to expand and thus trade in the wide geographies.
Economic factors
According to Thompson, Strickland and Gamble (2015), the Major economic factors
which has affected TESCO to a great extent are employment rates, economic growth, interest
rate, inflation, exchange rate etc.

Negative impact- Due to the devaluation of pound, the foreign exchange rate in UK has
decreased from past few years and thus the value of currency has fallen down. This has affected
the business of TESCO in great way. The export of various food items and other products has
become cheap and this has somewhat decreased the revenue and profitability of TESCO.
Positive impact- Since 2015, there has been an increase in the employment rate from 47.2% to
61.3% in UK. This has posed a positive impact on TESCO and thus has provided them with the
talented employees. This has eliminated the need of TESCO to outsource the skilled employees
from other countries. This increase in employment rate has also enabled to attract more and more
candidates from across the country. Besides this, the impact of Brexit has cut their interest rate in
banks to 0.75%. This has enabled TESCO to grant loans for the expansion at much less rate and
h thus has reduced their most of the expenses.
Social factors
The most important social factors encompasses health consciousness, population growth,
cultures, attitudes, lifestyle etc.
Negative impact- As illustrated by Akter and et.al (2016), UK constitute numerous retired
people in comparison to the young people and thus the population mostly consists of the aging
people. This has bought disadvantage to TESCO as the aged people are likely to eat less and
does not travel to the supermarkets more often. This has somewhat affected the revenue and
profitability ratio of TESCO. Besides this, the changing beliefs and values of the people has also
affected TESCO in negative way. As TESCO operates in large number of countries thus they
remain exposed to different types of people which have varying values and ethics and company
need to adapt to this.
Positive impact- As more and more consumers now have become health conscious and this
increasing awareness for organic food has posed a positive impact on TESCO. This has enabled
TESCO to focus on food containing less sugar and thus having plant-based ingredients. The
growing demand of the consumers for products which are fat free has eventually increased the
revenue and thus has enhanced the overall performance of TESCO. Besides this, the shopping
trends of the consumers in UK has changed and wants the superstore where they can easily find
everything. This has also impacted TESCO in positive way and has provided the consumers with
one-stop shop.

Technological factors
According to Balon and et.al (2019), these factors include automation R & D, online
platform etc which influences the functioning of TESCO
Negative impact- The remarkable presence of its competitors like Sainsbury, Marks & Spencer
are one of the challenge for TERSCO. There has been a competition in the market as who will
deliver the products with the helps of technology fastest to the consumers. This competition for
the fastest delivery has imposed a negative impact on TESCO to make changes in the supply
chain.
Positive impact- The growing demand of the consumers for online shopping and availability of
products on online platform has eventually helped TESCO to raise their revenue and
profitability. TESCO has launched its own app where the customers can conveniently have their
own shopping basket and thus can order within a single click.
Environmental factors
As per the view of Higgins, Omer and Phillips (2015), the most significant environmental
factors encompasses climate changer, weather change, environmental policies etc and these have
a huge impact on the operations of TESCO.
Negative impact- As the company operates in large number of countries thus it is exposed to
different environmental policies. As different county has different practices for environment thus
this has impacted TESCO in negative way as the company is required to follow the different
policies which sometimes becomes difficult. Besides this, the increasing demand of government
to use fuel efficient vehicles has also become a major challenge for TESCO where they would
have to work on fuel efficient van vehicles.
Positive impact- Nowadays, consumers are demanding from the firms to adopt practices like
paper packaging as well as the utilization of recycle materials. This has affected TESCO in
positive way and the company has shifted its focus from plastic packaging to parer packaging of
the products.
Legal factors
These factors encompass patents, copyrights, discrimination laws, Antitrust laws,
consumer protection laws etc which influences TESCO in great way.
Negative impact- TESCO has been known as well as has been under influence of various legal
actions which has hindered their operations and posed a negative image in minds of consumers.

In 2016, the workers of TESCO took legislation for discriminating on grounds of age, religion.
Besides this, it has also been under legal conduct for misleading their investors and accounting
fraud. These all legal actions has somewhat declined the image of company in the eyes of
consumers and shareholders and thus has eventually reduced their growth.
Positive impact- TESCO having the patent and copyright of their products have been under
great advantage as their products cannot be copied or duplicated by the competitors. Their
trademark has been their USP which has eventually posed a great impact on the sale of their
products and thus increased their revenue ratio.
Analysis of internal environment and capabilities of organization
SWOT analysis
Strength
As per the view of Strategy (2017),the main strength of the company is that it is one of
the most well-known as well as leading grocery retailer in UK. It has a high sales as well as
revenue ratio in comparison to other supermarkets in UK. Its wide presence and high geographic
diversification has formed the most important strength of this company. TESCO has more than
6700 stores which are present in more than 13 countries. Their wide presence has enabled them
to enlarge their customer base and thus enter the new market.
Weakness
According to Hart, Sharma and Halme (2016), the most important weakness which has
dominated TESCO is their bad operational performance within the particular market. Some
stores of TESCO are not performing up to the expectation and thus has failed to serve the
customers better. This failure is due to their poor marker research where they do not gather
information of market consistently and effectively. Another weakness is their reducing operating
profits. In 2018, the company's share prices fell down to 9% because of alleviation of operation
profits. This has resulted in their bad performance across the world.
Opportunities
The golden opportunity which is available to TESCO in the upcoming years is the
strategic alliance with major famous brands. TESCO can enter into the strategic partnership with
the well-known and reputed companies to gain a large part of market. This will help TESCO to
serve the nee customers and expand on wider geographies. Along with this, another opportunity
is the growing demand for online shopping. TESCO can avail the benefit of this opportunity by

growing as well as upgrading their online business and services and can also provide home
delivery at reduced cost.
Threats
The major threat which might transform the operations and functioning of TRSCO in
near future in the growing competition of supermarkets among the countries. TESCXO might
face downfall due to the presence of its major competitors like Walmart, Sainsbury who are
constantly evolved in bringing innovation and generating revenues. Another threat available for
TESCO is the exposure to different legislation and political situation. As company operates in
various countries thus they remain vulnerable to different political factors and legal regulations.
This might hinder their operations in the future.
VRIO framework
This is basically the tool which is used by the organization to asses their internal
capabilities and thus gain a competitive edge over their competitors.
Valuable
As illustrated by Pisano (2015), This consists of the resources which have the potential to
add some value for the customers. In short, this encompasses the resources which have the
ability to increase efficiency of the firm and at the same time provide them with various
opportunities. The local food products are mostly the valuable resources of TESCO because they
are extremely differentiated. This eventually makes the value perceived by customers high.
Along with this, the another valuable resource which enables the firm to gain competitive
advantage is its patent values. This enables the company to sell their products without any
competitive interference.
Rare
According to Hsieh, Ma and Novoselov (2018), This comprises the resources which are
rare and thus are difficult to find in the market. Resources that cannot be acquired by other firm
or can be possessed by only one or two constitute rare resources. The financial resources of
TESCO are their rare resources and thus are only acquired by only few companies. Besides this,
the distribution network of their company also constitute rare resources because competitors
would have to spend lot of money and time to access the good distribution network. They are
acquired only by the few firms.

Inimitable
This consists of the resources which cannot be duplicated buy the other firms and thus
does not relate to the other resources. The strong brand value of TESCO and its high brand
equity and recognition forms the resources which their competitors cannot copy or duplicate.
They would have to work harder to achieve this level of success. Apart from this, It logo and
symbol as well as its copyright and trademark is the most important resources which the other
competitors cannot copy or imitate.
Organization
This constitutes the extent to which the organization is organized in order to exploit the
benefit of various resources. This constitutes the organizational process, system, structure which
helps them to gain competitive advantage. The most important resources which TESCO contains
is their employees. TESCO has highly trained and skilled employees who have the capability to
deliver excellent result and thus attract the customers. The competitors would have to invest
money to give a well-through training to their employees. The distribution network of TESCO is
highly organized and thus uses this to reach and access the wide range of customers. Through
this, their products are usually available at all the outlets.
Analysis of competitive environment
Porter five forces
As per the view of Razak and et.al (2016), this is the tool as well as method which the
organizations use to analyses the various competitive forces which will impact the industry and
thus will help them to determine its weakness and strengths.
Threat of new entrant
The product differentiation is basically high in this industry in which TESCO operates
and due to the increasing demand of customers for the differentiated products, every company is
involved in providing differentiated products. This factor makes this threat much weaker for
TESCO as the new entrant would have to devise various strategies for innovating products.
Besides this, The capital requirement which is required in this retail industry is generally high
and becomes difficult for the new entrants to arrange such high amount for setting their business.
This capital expenditure is usually high due to the high cost of research and development.
Therefore, this factor for high capital also makes the threat of new entrant for TESCO low.
Overall the threat which addresses the entry of new competitor would be low for TESCO.

Bargaining power of suppliers
According to Leonidou and et.al (2015), the number of suppliers which prevails in this
within which TESCO functions are huge in number in comparison to the end buyers. Due to this
high number of suppliers, they generally have less or moderate control over fluctuating prices
and hence this makes their bargaining power much low for TESCO. Besides this, the products
which these suppliers offers are often standardized, have less switching cost and are less
differentiated. Because of this, the TESCO can easily switch to some other supplier for
delivering the product. Thus, this makes bargaining power of supplier low and weak.
Bargaining power of customers
According to Buckley and Ghauri (2015), due to the presence of various rivals in this
industry, the bargaining power of customers are generally high as they can easily switch to other
competitors who provide them the quality product as much low price. This makes a threat for
TESCO where their prices are generally are high and the customers can easily bargain on various
products. Besides this, there are various firms which provide alternative products and thus
substitute the product at much lower price. This also makes the bargaining power of customers
much high as they will switch to that organization which provide them same product at low
price. Therefore, the bargaining power of customers for TESCO is much high.
Threat of substitute products
As per the view of Martinez-Simarro, Devece and Llopis-Albert (2015), due to less
product differentiation, there are generally few substitutes that are available in the market
produced by the industry. As there are less substitute products means they are developed by low
revenue companies. This eventually makes the threat of substitute products much low and
weaker force for TESCO. Along with this, the few substitutes which are available in market have
high quality as well as have high price. In comparison to this, TESCO sell the differentiated
products at much lower price than the substitute products and also offer adequate quality. This
eventually prevent the buyers to switch to other substitute products. Thus, at the end, this makes
the threat of substitute product a weaker force.
Rivalry among competitors
As there are large number of firms which operates in this industry in which TESCO
operates and all the competitors have much established presence in market. This makes the
rivalry more intense for TESCO and thus makes this high for the company. Besides this, the

fixed cost in the industry within which TESCO operates is much higher than compared to other
industry. This means that the firms can ultimately reduce their prices when the demand slackens.
Therefore, this makes the rivalry fiercer and intense for TESCO and thus is string force.
Strategies for improving competitive edge
There are various strategies which TESCO can adapt to improve the competitive edge.
For dealing with the threat of new entrant, company can focus more on innovation for
differentiating the products. To have control on the bargaining power of suppliers, TESCO can
have and employee multiple suppliers in their supply chain which will enable them to easily
switch to another whenever they find suitable. For the bargaining power of buyers, TESCO can
differentiate their products on high level which will attract more and more customers and hence
will reduce their switching cost. To overcome the threat of substitute products, company can
emphasize on offering high and great quality at affordable price so that customers will choose
their products over competitors. To simplify the rivalry, Company can conduct the extensive
market research to thoroughly explain the supply-demand situation and thus prevent
overproduction. These all strategies at the end will helps TESCO to gain edge over their
competitors and attain competitive advantage.
Strategic management plan
Mission
To create the value for the customers by providing high quality services by continuously
adapting to the changing world and thus serve the world better.
Vision
To become one of the most highly valued firm and business by serving te customers,
communities better in which they function and thus work towards the interest of shareholders.
Objectives
 To enhance the sale of its products by 20% before the termination of 2020.
 To capture a large market share of around 30% before the closing of year 2022.
 To increase the experience of customer by 10% in forthcoming 5 months.
 To rise the profitability ratio by 20% before the year 2020.
Ansoff matrix
According to Eaton and Kilby (2015), this is basically the framework which helps an
organization to devise the various strategies for their future growth.

Market penetration
In this strategy, the organization basically offers their already established products in the
existing market and thus capture the market share by growing through the existing products. In
this, TESCO can become market leader by offering discount on their existing products and thus
can attract the existing customers.
Market development
In this strategy, organizations mainly tries to expand in the new geographies of the world
by using their existing products. Thus, they capture market share by selling their products in the
new market. TESCO can open their new stores at different locations where it is not present and
thus can provide the established products to these new locations.
Product development
As per the view of Soltanizadeh and et.al (2016), under this, the organizations endeavors
to capture the great market share by producing new products and thus offering it to the already
established market. This involves selling new services and products to existing market. TESCO
can extend its product range or develop new products which are different from parent brand like
electrical appliance and can offer to their existing customers. Moreover, TESCO can extend the
network by having strategic alliance with some domestic players and can offer new services.
Diversification
In this, the organizations produce new product and thus offer it to the brand-new market.
In short, under this strategy company increases market share by providing new products to te
new market. TESCO can offer new products which are different from others like video streaming
and thus can offer it to the new market of content and media technology.
Justification for appropriate growth
The most appropriate strategy which will help TESCO to gain competitive advantage is
product development where the company can produce new products like insurance and can
provide to their already established target customers. This strategy will reduce the cost of
company to enter the new market and have market research and thus this money can be used to
reduce new and differentiated product. This will eventually help them to increase their revenue
and profits.

Tactics to adopt
According to Oldman and Tomkins (2018), the various tactics which TESCO can adapt
to gain an edge over their competitors and expand in wider geographies are
Product and services
The competition in industry requires the companies to produce and new and
differentiated products to meet the consumer needs. Thus, this is the most significant tactic and
strategy which TESCO can use to attract the customers. TESCO can differentiate their products
by continuously innovating them and inculcating new products in the product line.
Accessibility to outlet
As illustrated by Yuliansyah, Gurd and Mohamed (2017), this is one of the most
remarkable tactic which helps the organization to achieve their goals and objectives. The
company need to provide their products where the customers can easily reach to them without
any problem because if customer did not find required product nearby then they can switch to
other company out of frustration. Thus, it is important for TESCO where they can have their
outlet at convenient place where the customers can easily reach.
Pricing strategies and tactics
Each and every consumer is always concerned about the price of product and thus always
want the best quality at affordable price. This is another important tactic which TESCO can
apply to gain competitive advantage where they maintain their price level along with providing
the best quality. In special occasion they can offer sale, cashback to their customers and thus
keep their price low. While providing the highly innovative product, company can have high
practice as this will reflect the high quality.
Marketing promotion
Every company seek to attract the consumers by using different promotional strategies as
well as marketing strategies bu in order to establish their position, using the correct mix of
promotion is essential for company. TESCO can focus on different promotional strategy
according to the different scenario to attract consumers. Like the company can use contests for
promoting their products where they can organize content for their products by providing