External Audit of Tesco: Analysis of External Environment Factors

This report conducts an external audit of Tesco, a global retail company, examining its environment through three interactive segments: remote, industry, and operating environments. The remote environment is analyzed using PESTEL, evaluating political, economic, social, technological, environmental, and legal factors. The industry environment is assessed using Porter's Five Forces to determine competitive pressures from rivals, customers, suppliers, substitutes, and new entrants. The operating environment focuses on key external stakeholders, including customers, suppliers, competitors, and interested groups, and their influence on Tesco's operations. The analysis highlights the impact of external factors, such as political stability, economic trends, changing customer preferences, technological advancements, environmental concerns, and legal compliance, on Tesco's strategic options and competitive position, providing a comprehensive overview of its external environment.

Task 2 - Conduct and
External Audit for a
New Venture or a
Company of Your
Choice

Table of Contents
INTRODUCTION ..........................................................................................................................3
EXTERNAL AUDIT OF TESCO...................................................................................................3
Remote environment analysis.....................................................................................................3
Industry environment analysis....................................................................................................5
Operating environment analysis .................................................................................................6
CONCLUSION ...............................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
The external environment consists of the outside factors or the influences which have an
impact on the operations of the business. The external environment of a business consists of the
two types of environment of which one is micro and the other is macro environment. The
business must be ready to act or react on them so that it keep up with the flow of the operations.
The external environmental factors consists of competition, customers, technology, political,
resources, economy and social conditions which have influence on the performance of the
organisation (Konovalova and et. al., (2018)). Even if the external environment works outside, it
has great influence on the internal growth, operations and sustainability of the business. The
organisation chosen for this report is Tesco Plc, a retail based company which is operating
worldwide. It was established in 1919. The mission statement of the company is to become a
champion of the customers by helping them to enjoy the easy and quality life by delivering them
good quality products at affordable prices. This report shall cover the analysis of external
environment which consists of industry, remote and the operating environment.
EXTERNAL AUDIT OF TESCO
For analysing the environment of the business, it is divided into three main interactive
segments which involves remote, industry and the operating environment.
Remote environment analysis
In context to remote environment, the PESTEL analysis is discussed below for the
company Tesco. It is a model which helps in identifying the external factors which may affect
the performance and working of the company. Remote environment involves the situation that
occurs as the threat or may cause the change which can happen to the specific industry or
company. In context to Tesco, the PESTEL analysis is discussed below-
 Political- It is concerned with the political environment of the state where the company
operates. Tesco operates in multiple countries whose political environment or stability
affect the operations of the organisation (Regent and et. al., (2019)).
The positive impact of the the political factor is that political stability of the countries like
United Kingdom (UK) support the operations of the company which helps Tesco in enhancing its
productivity by increasing sales whereas the negative impact of the political factor is that the
ongoing financial instability across the world have affected the working of the companies as

people expect job opportunities mainly from retail sector which affect the reputation of the
company if jobs are not created.
 Economic- It involves the economic stability of the country and the economic factors
like inflation, fluctuation in foreign currency and many other.
The Positive impact of economic factor is that the company Tesco is familiar with the policies
and laws of different countries where it is operating which helps in growing the business
internationally and the negative impact is that the organisation Tesco is mainly dependent on the
UK market which covers the total market share of 30%. This is due to the economic instability in
other countries.
 Social- It involves changing trends and preference of the customers. The company works
according to these changing needs so that it can work to fulfil the demand of the
consumers.
The positive impact of this social factor is that the Tesco company deals in variety of goods
which gives the customers one shop experience. It has increased the sale of non food items so
that it can get influence with the social conditioning while the negative impact is that the
changing demand of the customers and their shift to healthy lifestyle may affect the operations of
the company. The shift to organic products have decreased the demand of food which Tesco
offers.
 Technological- It is concerned with the advancements of the technology which bring
new opportunities for the companies (Novikov, (2018)).
The positive impact of technological factor is that the company keep itself updated with the
installation of new technologies like it introduced online shopping for customers so that it can
bring easiness for the customers to shop while the negative impact is that Tesco invests in
technologies which decreases its profitability due to hike in technological cost.
 Environment- It is concerned with the environmental protection so that no operations of
business affect the ecology.
The positive impact of environmental factor is that The Tesco company uses fuel saving routes
so that it can lower the rate of harming the environment so it encourages customers to shop
online. Moreover it encourages collecting the plastic bags and then recycle them whereas the
negative impact is that the company Tesco faces immense pressure from the government to
address its environmental issues.

 Legal- It involves compliance with laws and regulation so that the companies do not face
any legal consequences.
The positive impact of legal factor of PESTAL is that The organisation Tesco tries to comply
with each country's law where it is operating so that it does not face any hardships or its
reputation is not harmed whereas the negative impact of the factor is that the company Tesco
has faced the legal consequence of accounting fraud in the past which affected its goodwill and
market share.
Industry environment analysis
It is the second step of the strategic analysis whose main purpose is to determine the level
of the competitive pressure which the business faces. For industry environment analysis, Porter's
five forces is being used which will help in examining the competitive environment of the
company. In context to Tesco, Porter's five forces is discussed below- Competitive rivalry- It involves the number of competitor's which exist in the
environment. The power of this force, in relation to Tesco is moderate where the
company has many well established competitors like Asda, Sainsbury which work on to
capture each other's market. But Tesco is also a well established brand which has its loyal
customer base. Bargaining power of customers- It is concerned with the power of customers to lower
the price. With reference to Tesco, the power of this force is high as there is relatively
less switching cost in retail sector. But customers can switch over the cost easily. So
Tesco has to come up with various offers and discounts to keep the customers happy. Bargaining power of suppliers- It is concerned with the power of suppliers to increase
the cost. In context to Tesco, the power of this force is low as the company has numerous
suppliers all round the world so Tesco can easily negotiate with them and select their
suppliers accordingly (Jadan, (2020)). Threat of substitute- It involves the number of substitute available in the market. The
power of this force is moderate as the consumers can shop easily with other brands in
relation to non food item like clothes from Zara or Gap which may affect its market share
and the threat from food items may be low as Tesco sell its product in cheap rates to
attract customers.

 Threat of new entrant- It involves the easy entry in the industry. The power of this force,
in relation to Tesco is low as organisations have to invest more in this retail sector which
is little difficult as it is not easy to establish the presence in retail sector. Moreover, the
company Tesco is a well established brand which cannot be affected by the new entrants.
Operating environment analysis
Operating environment is also known as the task environment which mainly includes the
outside stakeholders with whom the company interacts so that it can conduct its business
operations. These external stakeholders have direct impact on the working of the company. They
have their self interest in the company and places different demands on the organisation so their
interest may be same or different so it is important that the management make a balance between
the interest of all stakeholders while making any decision (Sigcha and et. al., (2020, July)) . The
four main external stakeholders which influence the working of Tesco involves the following- Customers- They are the one who embraces the business. The company has to work
according to the changing needs and demands of the customers so that it can satisfy the
needs of the consumers. The company Tesco ensures that it keep its operations dependent
upon the consumers so that it can recognise and assess the changing consumer taste so
that future profitability and viability can be ensured. Suppliers- These are the one who supplies the resources to the business so that it can
carry on its operations. The company Tesco has many suppliers which helps it to built a
good network of suppliers so that it can prevent its influence. Having a single supplier
may put the organisation to the disadvantage of relying on one. So the good network of
suppliers help Tesco in smooth working. Competitors- These are the one who offer the rival product or service to the customers.
As seeing from the view point of companies, competition helps in enhancing the
efficiency of the production so that a better quality product is reached to the customers
and a loyal customer base is created. Tesco gets motivated with its competitors and try to
come up with such strategies which can help it to take an edge over them. The company
has numerous well established competitors which help in increasing the productivity of
the business.
 Interested group- These are the people who attempt to influence the organisation
directly. Their influence or persuasion have such a direct impact that company has to

adopt to such policies which safeguard their interest. With reference to Tesco, the
interested group involves trade union, employees and many other. The company shape its
policy according to them so that it can operate its functions smoothly and efficiently
(Nguyen (2017)).
CONCLUSION
It is concluded from the above report that business operates in the environment which
affect the working of it. There are two types of environment which includes micro and macro
environment. The three interactive segment of the external environment includes remote,
industry and the operating environment. The remote environment analysis of Tesco is done
through PESTEL analysis and industry analysis is done through examining the competitive
advantage through the Porter's five forces which helps in identifying the power of the forces like
suppliers. Customers, competitors, substitute and new entrants. Further it is concluded that
operational environment analysis is done by identifying the external stakeholders like customers,
suppliers and competitors who influence the working of the company and have direct impact on
their functioning.

REFERENCES
Books and Journals
Konovalova and et. al., (2018). Forming approaches to strategic management and development
of tourism and hospitality industry in the regions. Journal of Environmental
Management & Tourism, 9(2 (26)), 241-247.
Regent and et. al., (2019). Improvement of Strategic Management of a Tourism Enterprise in the
International Market. Journal of Environmental Management & Tourism, 10(3 (34)),
427-431.
Novikov, S. V. (2018). Strategic analysis of the development of high-technology manufacturing
facilities. Russian Engineering Research, 38(3), 198-200.
Jadan, D. (2020). PESTEL Analysis as a Baseline to Support Decision-Making in the Local
Textile Industry. Systems and Information Sciences: Proceedings of ICCIS 2020, 1273,
144.
Sigcha and et. al., (2020, July). PESTEL Analysis as a Baseline to Support Decision-Making in
the Local Textile Industry. In International Conference on Systems and Information
Sciences (pp. 144-156). Springer, Cham.
Nguyen, T. T. (2017). Management education as an industry and MBA as a product: revisiting
joint MBA programs using Porters five forces model. Global Business and Economics
Review, 19(3), 356-377.