Strategic Analysis of Tesco plc: Business Environment and Strategy

This report offers a detailed strategic analysis of Tesco plc, a leading retail company. It begins with an in-depth examination of Tesco's external environment, employing the PESTLE framework to identify political, economic, social, technological, legal, and environmental factors, alongside an industry analysis using Porter's Five Forces to assess competitive dynamics. The report then shifts to an internal analysis of Tesco, evaluating its strengths and weaknesses, and utilizing value chain and VRIO analyses to determine core competencies and competitive advantages. Finally, the report evaluates Tesco's existing strategy, applying the SAFe criteria to assess its effectiveness and providing a comprehensive overview of Tesco's strategic position and recommendations for future success.

Applied
Corporate Strategy

Contents
Introduction......................................................................................................................................3
Main Body.......................................................................................................................................3
1. External analysis of Tesco plc............................................................................................3
2. Internal Analysis of Tesco plc............................................................................................7
3. Strategy Evaluation of Tesco plc......................................................................................10
Conclusion.....................................................................................................................................12
References......................................................................................................................................14

Introduction
Corporate strategy is unique approach towards strategic decision making by analysing
similar industry and identify the manner in which organisation can create maximum of value. It
is one of most effective technique through which organisation will be able to reach profitability
point in its existence. It consists of various decisions making which makes business operation
more efficient and productive so that business organisation can increase its market share.
Corporate strategy focuses over various business segments such as internal environment, external
environment, allocation of resources, business deign and so on. Therefore in this report, in-depth
analysis will be carried forward by considering various business aspects so that success can be
attained. In this regard, Tesco plc has been evaluated in detail in regard to its respective business
operations, internal & external environment, etc.
Main Body
1. External analysis of Tesco plc
Political environment: Political factor described as diplomatic condition of a place where
organisation is being located. It is important to consider political environment while considering
external environment of an entity (Bénet and et. al., 2019). Tesco being leading organisation in
retail industry, it emphasises over its political environment by making proper adoption of
government policies in order to promote consistency and safety in regard to operations. Political
factor include fluctuations and shift in political segments which can cause great impact to healthy
running business unit. It is considered as threat to a business as it involves compliances and
abiding with laws which builds complexities for an organisation in order to operate its business
in easier manner.
Economic environment: Economical factor is closely linked with organisation in terms of
its revenue generation capacity and other benefits being drawn by such entity. A company like
Tesco needs such an economic condition which will enhance earning capacity of it without any
delays in payments, receivables and others (Bonsu, 2019). Economic fluctuations cause great
impact to business organisation due to which it will be unable to meet its business obligation in
the long term. Inflation and deflation rates play significant role an economical environment of a
country. It is considered as threat and sometimes as opportunity because if organisation is

located at a place where there is maximum favourable economic environment then it will
promote increase earning capacity of the company.
Social environment: It refers to a market condition where demographic factors are being
considered. Society plays vital role in organisational success and failure. Thus it is important to
consider their needs and requirements in adequate manner (Fontrodona and et. al., 2018). Social
analysis is necessary in order to identify customer needs, requirements, culture, age, gender,
income, etc. Therefore organisation is required to analyse requirement of its target audience as
per their age, gender, culture, and income and so on. Therefore Tesco needs to produce goods
and service by considering needs of its large customer base so that such audience could be
retained for longer period. It is considered as opportunity to perform well in the market so that
maximum customers can attract to business entity can enhanced profitability will be achieved by
such organisation in related period of time.
Technological environment: Quick shift in technology is being observed in recent times
and therefore it is important to cope with such changing environment in order to retain market
position for long lasting period (Goyal and Howlett, 2019). Tesco has implemented advanced
technological base in order to meet current market obligations so that uncompromised profits
could be achieved. It is considered as opportunity for business organisation as its adoption will
aid in retention of appropriate customer base and long term profitability.
Legal environment: Legal environment compromise of laws and regulations which is
being provided by government or statutory authorities in regard to business organisations so that
optimum transactions could be carried out (Gursoy and et. al., 2017). Therefore any change or
modification in policies or laws of such operating location could be threatening for business unit.
Tesco being a market leader in retail sector, it has operations across the world and therefore it
has to comply with local and international legal laws in order to carry out its operations in
smooth manner. It is considered as prevailing threat to a company as it will lead to complexities
and broad framework which needs to be abiding with in order to run business operations in
appropriate manner.
Environmental: It involves of those factors which are related to eco-system. Thus
environmental factors need to be considered so that maximum customers could be attracted
towards company in effective manner. Tesco has been working on developing sustainable
environment through which eco-friendly products could be promoted and eco-destructive

products should be eliminated in order to maintain healthy environment. It is considered as
opportunity for business unit to build such a product base or implement such business ideas
which will promote healthier environment.
External factors Opportunity Threats
Political Factor - 
Economic Factor  
Social Factor  -
Technological Factor  -
Legal Factor - 
Environmental Factor  -
Industry Analysis
Forces Power Factors
Competition rivalry High Various companies in
respective industry who
compete over market share.
Threat of substitution Moderate Tesco being a market leader
does not fear substitution.
Threat of new entrants Low Though there are large entry
barriers but Tesco being s
well-established company it
has low threat.
Power of suppliers Low Due to large number of
suppliers, Tesco could
sufficiently bargain prices in
order to run operations.
Power of buyers High Buyer plays significant role
for organisational growth
and their control over market

is high.
Competition rivalry: it is a market condition where competition is huge and such market
players affect prices of goods and services in such industry. In retail industry, the level of
competition is high which is affecting growth of Tesco and causing fluctuations in its market
share.
Threat of substitution: It refers to availability of same products and services in market to which
customers could shift easily which might decrease customer retention power of a company. In
retail sector, there are organisations which are offering their products alike from big enterprises
which are causing customer diversion due to availability at lower prices (Kozak and Pindelska,
2019). Tesco being a leading retail company, it does not have much of substitution threat due to
its brand recognition and customer loyalty as it provides best quality goods and services.
Threat of new entrants: It allows new companies to enter into existing market which could
cause existing players risk of customer diversion. Tesco is considered as strong market holder
and best retailer, therefore such threat is low in nature.
Power of suppliers: When raw material is not available at reasonable prices, it is assumed that
suppliers are influencing such prices of raw items which could hamper operations of a business.
In case of retail industry, it is observed at there is large number of suppliers and therefore it
becomes easier for companies to raw materials in an easier manner without having dependency
over single supplier. Tesco also have various options in regard to suppliers due to which power
of supplier is not a threat for the company.
Power of buyers: customers are significant player of market which has vital influence over
company’s success. Therefore it is required to prioritize customer in order to draw maximum of
benefits in such industry (Nam and et. al., 2019). In this regard, Tesco which is operating in retail
industry has huge customer base which needs to be managed in adequate manner and offering
optimum price policies as switching cost of customer from one product to another is low and it
reflects that buyers have high influence over the market.
2. Internal Analysis of Tesco plc
Strengths

 High market share: Tesco company which is the most popular supermarket in Ireland has
27 % of market share in Great Britain grocery retain market and it is the largest market
share among the big four supermarkets in Great Britain. Their greatest asset is their large
market share, which puts them ahead of their competitors.
 Geographically diverse: Tesco company have around 6800 stores in 14 countries and
apart from this, the company also popular in and have store in Europe and North America
and apart from this the company also enjoys a huge market share in Asian countries as
well. Their overall success around the world has gotten them to where they are now, and
they are still growing.
 Superior Technology: Tesco Company uses the best technology and always tries to
enhance the shopping experience of its customer. This company has introduced a barcode
system that supports new RFID to calculate the product automatically. There m
commerce facilities and mobile payment application are also very advanced in nature as
compare to other companies.
 Effective supply chain: This Company with the help of efficient waste management
policies, reduced cost and business model, it has created a better and sound supply
network. Suppliers of this company also enjoy the profitable relationship with this
company (Roe, 2019).
 Largest grocery retailer: Tesco is the largest and No.1 supermarket in United Kingdom.
In the comparison with other grocery retailer it has the most sales and revenue among
other supermarket chains in Great Britain. In 2018 its operating profits rises with a
whopping 28%.
Weaknesses
 Failure in Japan and US: Due to failed operation in exports, it had to exit from America
after 5 years of working and from Japan after 9 years of working in 2012. Their overall
success around the world has gotten them to where they are now, and they are still
growing.
 Declined operating income: In 2018, the share price of Tesco is constantly decreasing and
it falls more than 9% due to decline in operating profits. After the Brexit referendum, it
was the worst performance of company. Their operating income drop as a result of this
type of results in 2018, and their business credibility declines as a result.

 Low-cost strategy: Tesco may be the Price leader retailer in the UK, but its low-cost
approach may result in lower profit margins. Their earnings are not up to par as a result
of their low-cost strategy, and they are facing setback after setback as a result of this
strategy.
 Financial errors: Tesco's operating earnings are severely harmed as a result of its large
debts and credit card liabilities. Their profit is also degraded due to financial errors, as
their debts and liabilities grow, and they are unable to gain profit.
 Fraud scandal: Tesco was hit with fines in 2017 for making false accounting statements
and misrepresenting income. Tesco's reputation and goodwill have been severely
damaged as a result of this incident.
Value chain analysis
Value chain analysis is conducted to identify activities and operations being executed by
organisation with a view to earn profits and market position in adequate amount (Ryan and et.
al., 2021). For Tesco Plc, Value chain analysis can be evaluated as follows:
From above value chain analysis, it is identified that Tesco has optimum customer
loyalty, consumer satisfaction, product differentiation, timely delivers and improved
technological infrastructure. It is been operating with having optimum mix of activities which
will enable organisation to draw maximum of profits and promote productivity by encouraging
its workforce through certain strategies and policies.

VRIO analysis of Tesco
VRIO analysis is a technique which is used to analyse internal environment of an
organisation in appropriate manner. In respect to Tesco, VRIO analysis can be carried as follows:
Capabilities/
Resources
Value Rare Imitable Organisation Competitive
Advantage
Optimistic
market
position
Yes Yes Yes Yes Long term
Brand
Awareness
Yes Yes No Yes Strong
Large
customer
base
Yes Yes Yes Yes Long to
moderate
Technology
Advancement
Yes Yes Yes Yes Strong
Diversified
Stores
Yes No Yes Yes moderate
 Optimistic market position: In this respective area, Tesco has considerably strong
competitive advantage which enables it to operate in effective and efficient manner. It is
important to have optimum market position in order to promote long term customer
retention which will be helpful for company in long lasting period. In order to attain
appropriate market share, organisation needs to build adequate infrastructure and best
quality goods and services which will create customer loyalty and profitability for long
term.
 Brand Awareness: It is necessary to spread awareness of a respective brand among
customers in order to increase large customer base which will be helpful for organisation
for ultimate success. By analysing above VRIO table, it is determined that Tesco has

competitive advantage in terms of brand awareness so that organisation can perform in
adequate manner for longer period.
 Large customer base: It is considered to the situation where customer base is given
optimum preference so that adequate audience can be attracted for achieving
organisational goals (Sick and et. al., 2018). Tesco being a biggest retailer has contained
huge consumers which are loyal towards respective brand.
 Technology Advancement: It is considered as core competencies for Tesco which will be
helpful for survival in such competitive environment. It is significant to keep up with
related technological advancement in order to meet related needs of customers. This
factor provides appropriate competitive advantage of company in terms of both monetary
and non-monetary.
 Diversified Stores: Being leader in retailer market, Tesco is able to establish its roots
across the globe which has been helpful for organisation in various forms. It is said to
produce moderate to low competitive advantage to Tesco so that it could survive in
competitive environment in adequate manner.
3. Strategy Evaluation of Tesco plc
TOWS Analysis of Tesco
TOWS analysis is an effective technique which analysis both external and internal factors
of an organisation having their interrelated effect over performance of an organisation in the long
term (Tosello and et. al., 2019). In respect of Tesco, TOWS analysis could be made in following
manner:
Internal Factors
E
xt
er
n
al Strengths(S) Weaknesses(W)

Factors
Opportunities(O) Being
Geographically
diverse, Tesco could
attract several social
groups in order to
increase brand
awareness.
To adopt effective
pricing strategy so
that Demographic
diversification could
be achieved by
Tesco
Threats(T) By attaining
technological
advancement, it will
be easier to
eliminate risks of
customer diversion
by Tesco.
By promoting
adequate financial
structure, Tesco will
be able to eliminate
the risk of Losses.
Power/Interest Matrix of Tesco
It is referred to analysis of various stakeholders of an organisation in order to identify
their related interest and power level towards an organisation (Wilting and van Oorschot, 2017).
Following analysis is conducted in view of Tesco plc:
Low High
Power
Government Customers High
Communities Suppliers Low
Interest
Government: It is considered as supreme authority which regulates organisational activities and
operations in order to promote systematic and adequate corporate structure. It is determined that
Government plays significant role in overall development of an organisation. Therefore, Tesco
has analysed that government involvement with its operations is in following manner:

Interest: It is analysed from above table that government has low interest in Tesco plc which
makes it less affected by its operations and activities in marketplace.
Power: Government has higher rate of power in Tesco’s related laws and policies in order to
regulate such corporate structure so that social integrity could be promoted.
Suppliers: It is group of individuals which provide adequate raw materials to an organisation in
order to manufacture goods for further sales to ultimate customers (Zhengmao and Hui, 2020). In
reference to Tesco, supplier respective power and interest could be analysed as follows:
Interest: In regard to Tesco plc, suppliers are said to have high rate of interest in related
operations of business as every supplier wants to be part of supply chain of such well established
organisation.
Power: It has relatively low amount of power in respect of Tesco in respect to influencing its
related operations in any manner. As it is identifies that there are huge amount of suppliers in
retail industry therefore they does not possess any kind of power over such market leader.
Customers: Consumers are one of the important market factors which need to be focused in
adequate manner so that maximum profitability could be achieved and it will become easier to
survive in long term by an organisation (Mohamadikharajo and et. al., 2020). In term of Tesco,
customer’s related power and interest in organisation is analysed as follows:
Interest: Customers have relatively high rate of interest as Tesco is considered as one of market
leading organisation which provide best quality product and services which acquiring attention
of customers and thereby creating their interest in such organisation.
Power: They have high power in order to influence Tesco’s market share by switching their
brand from Tesco to other brand which could be dangerous for survival of Tesco.
Communities: It includes social groups which are part of society. It could somehow affect
business flows and operations in one way or another (Artz and et. al., 2020). In case of Tesco,
interest and power of communities can be analysed in the following manner:
Interest: It is analysed that communities has comparatively low interest in Tesco as compared to
other market forces.
Power: communities have low power towards influencing operations of an organisation such as
Tesco to affect their operations in significant manner.