Tesco and the UK Business Environment: A Comprehensive Analysis

This report offers a comprehensive analysis of Tesco's business environment within the United Kingdom. It begins with an introduction to Tesco PLC, highlighting its market position and global presence. The report then delves into the UK's economic systems, including resource allocation through price mechanisms and its implications for Tesco's operations, particularly in relation to consumer demand for fresh produce. The impact of fiscal and monetary policies, such as interest rates and tax policies, on Tesco's business activities is thoroughly examined, including discussions on cost of borrowing, exchange rates, and potential inflationary effects. Furthermore, the report explores the influence of competition and regulatory mechanisms, such as the Competition Act 1998 and other regulatory bodies, on Tesco's market conduct and profitability, emphasizing the importance of maintaining a competitive environment and protecting stakeholder interests. The analysis provides a detailed understanding of the factors shaping Tesco's business environment and the challenges and opportunities it faces within the UK market.

Tesco & VIrgin Atlantic
Business Environment
Tesco & The business environment

Task 2: Understand the national environment in which Tesco operates
Company Introduction
Tesco PLC is one of the largest grocery and general merchandise retailer of the UK with its
headquarters in Welwyn Garden City, England. Tesco PLC is the third largest retailer in the world
when measured by profits; it has stores spread across 12 countries spread across Asia, Europe and is
market leader in the UK, where it has an estimated market share of 29%.
Economic systems to allocate resources effectively
Until 2015, the economy of UK was the second largest in the entire Europe, falling behind only
Germany, and it stood tall at number 5 in the world with a figure of 2.848 Trillion USD .Some
highlights of the UK economy are:
 Banking and the Insurance sector, is the strongest sector of the UK.
 The UK is the world’s eleventh biggest manufacturing nation.
 South of England and Great London area are the drivers of the UK economy.
 Service sector is the major contributor to the GDP (79% of the GDP)
The UK economy was hit by Global financial crisis in the last decade and after the pro-Brexit vote
back in June 2016, the impact on the UK is still hard to ascertain, the economy is although growing,
but not as per the earlier projections.
Price mechanism is a key factor which helps in determining what has to be produced and for whom
it has to be produced, it is a key indicator of the goods for which the consumers are willing to pay a
higher price and for the goods consumers want to pay a lower price, thus reaching the price
equilibrium in the country. The resources are thus automatically diverted to the goods for which the
consumers are willing to pay a higher price, because they are more profitable for the company,
suppliers and even the government. In case of Tesco, the government understood the need of Fresh
farm produce and their importance to the consumers, the consumers are willing to pay a high price
for fresh products, thus comes Tesco to the rescue. Tesco has been providing its customers with
fresh farm produce, fulfilling their needs and also making money for the company in the process.
The economic resource allocation in UK is according to the three fundamentals in follows:
 Resource allocation to increase the customer satisfaction

 Resource allocation to increase the profitability of the organization
 Resource allocation for the welfare of the societies.
These three are the benchmarking rules against which a government does its economic resource
allocation.
Impact of Fiscal and Monetary Policy on Business organization and
activities
The components of the Fiscal and monetary policy which may affect the business activities of Tesco
are:
Monetary Policy Fiscal Policy
Tool Interest rates Tax and government spending
Effect Cost of Borrowing/Mortgages Budget deficit
Distribution Higher interest rates Depending upon what taxes are
to be increased
Exchange rate Higher interest rates leads to
appreciation of the currency
No effect on the exchange rate
Supply side Limited impact Higher taxes might affect the
incentives to work
Politics Monetary policy set by the
central bank
Changing tax and governmental
spending
Liquidity trap Cuts in the interest rates might
not work in case of liquidity
trap
Fiscal policy advised in very
deep recession situations

Tesco
will not be affected by the increase in the tax rate, but at the same time its earning will get reduced
by average margin. The company would be in a position to cater to the demands of the other
countries consumers and hence its suppliers will not be affecting, thereby compensating for the loss
due to increased taxes in the UK market.
Reduction in the Interest rates will allow people to spend more on the items thus increasing
purchasing power parity is a good sign for Tesco. Another angle to look at the lower interest rates is
that increase in the money supply may lead to inflation which will lead to lower demand, thus the
orders from the suppliers have to be reduced leading to low profits for them.
Impact of competition and other regulatory mechanism on the organization
Government imposes competition and other regulatory mechanism on the organization to ensure
that the welfare of the society is by large taken care of by the organization and also to ensure that
the organization in order to achieve a higher profitability does not follow malpractices in the system.
The impact of the UK competition policy is to restrict the company from creating a position of
monopoly, where by deploying the strategies of economies and economies of scope the company
kills the competition and emerge as the supreme reigning player in the industry. Another aspect of
the regulation is to build a healthy competition within the industry, and to ensure that the benefits

of the competitor are getting reached to the end consumers. The regulation policy by large keeps the
interest of the stakeholders as a priority, and works to maximize and sustain their profitability. The
competition policy in UK economy is based on the Competition act 1998, Enterprise Bill 2002, Office
of Fair trading and competition commission and other regulatory bodies including the company’s act
2006, the regional policy, the industrial policy and training and skill policy.