Report: Strategy and the Global Competitive Environment for Tesco

This report provides a comprehensive analysis of Tesco's strategy within the global competitive environment, focusing on its food market operations. It begins with an executive summary and introduction, followed by a detailed PESTEL analysis of the political, economic, social, technological, legal, and environmental factors influencing Tesco's business. The report then applies Porter's Five Forces model to assess the competitive landscape, including threats from rivals, suppliers, buyers, entrants, and substitutes. It also examines key trends and drivers in the market. An internal analysis using VRIO framework identifies Tesco's core competencies. The report also discusses the attractiveness and distinctiveness of the food industry and Tesco as a firm, including a benchmark analysis. The conclusion summarizes the key findings and strategic implications for Tesco's future.

Running head: STRATEGY AND THE GLOBAL COMPETITIVE ENVIRONMENT
Strategy and the Global Competitive Environment
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1STRATEGY AND THE GLOBAL COMPETITIVE ENVIRONMENT
Executive Summary
This paper will highlight the internal and the macro environmental factors of Tesco’s food
market. An indepth analysis of the macro environmental factors is carried out in this paper. The
core competencies of Tesco using VRIO analysis is also discussed in the paper. The
attractiveness and distinctiveness of the food industry in accordance with Tesco is discussed in
this paper.

2STRATEGY AND THE GLOBAL COMPETITIVE ENVIRONMENT
Contents
Introduction......................................................................................................................................3
Pestel Analysis.................................................................................................................................3
Political Environment..................................................................................................................3
Economic Environment...............................................................................................................3
Social factors...............................................................................................................................4
Technological factors...................................................................................................................4
Legal factors................................................................................................................................5
Environmental Factors.................................................................................................................5
Porter’s Five Forces.........................................................................................................................5
Threat from rival firms................................................................................................................5
Bargaining power of suppliers.....................................................................................................6
Bargaining power of buyers.........................................................................................................6
Threat to entrant...........................................................................................................................7
Threat from substitutes................................................................................................................7
Trends..............................................................................................................................................7
Key Drivers......................................................................................................................................8
Attractiveness and distinctiveness of the food industry and Tesco as a firm..................................8
Internal Analysis of Tesco...............................................................................................................9
Core Competencies using VRIO analysis....................................................................................9

3STRATEGY AND THE GLOBAL COMPETITIVE ENVIRONMENT
Benchmark.....................................................................................................................................10
Conclusion.................................................................................................................................10
References......................................................................................................................................12

4STRATEGY AND THE GLOBAL COMPETITIVE ENVIRONMENT
Introduction
Tesco is one of the leading multinational grocery stores of U.K which is operating in 12
countries across Europe and Asia. The company was geographically diversified into various
segments such as food, clothing, furniture, toys and many more in the year of 1990s. The food
sector of Tesco is expanding rapidly and it provides one day delivery service across UK. The
online food market is expected to grow by 54% to 16 billion pounds from 2017 to 2022. This
paper will highlight the internal and the external analysis of Tesco’s Food sector using Pestel,
Porter’s five forces, the trends of Tesco and the key drivers, core competencies, competitive
advantages (Wood et al. 2016).
Pestel Analysis
Political Environment
The political environment of UK is very stable and it provides a suitable environment for
any new business to enter into the market. UK is one of the most prosperous economy where
people enjoy decent standard of living. The economy of UK also shares close political relation
with other neighboring countries and thus this will be an additional benefit for Tesco. The trend
of inward investment of the economy has helped Tesco to protect their financial and labor
resources. UK ranks 7th among the 190 countries in “Ease of doing business” (Gov.UK 2017.).
Economic Environment
UK is a wealthy and developed economy. The economy has least market barriers and it
offers an open environment for business. The economy of UK is best suited as high security
markets and it also known as financial hub. The easy facilitation of cross border trade will also

5STRATEGY AND THE GLOBAL COMPETITIVE ENVIRONMENT
facilitate Tesco to operate its business successfully in the UK market (Zhao 2014). Moreover,
the economy of UK also experiences a large number of immigrants every year and it is estimated
to cover more than half of the population by the end of 2030. This offers a large customer base
for Tesco. Moreover, the economy also enjoys the benefit of free trade accompanied with higher
growth rate and GDP per capita of 43,976.42 US dollar. Thus, the economic environment of UK
is suitable for Tesco to operate its business successfully (Ismail 2017).
Social factors
The people of UK like to preserves their tradition along with high acceptability of
western values and traditions. The literacy rate of the people of UK is high and it accounts for
99% because of the great preference for education. As the result, the economy has also grown
fondness for the modern means of shopping. It will also be beneficial for Tesco’s online
marketing forum because it will be easily accepted by the customers. Moreover, the people of
UK prefer high quality food and they are willing to pay higher prices for the product. Tesco can
attract the customers by offering quality food products at an affordable cost and also provide
discount on certain items (Ho and Temperley 2013).
Technological factors
UK is famous for technological growth and continuous innovation. Due to constant
innovation, it stood 5th in the “Global Innovation Index”. There has also been a continuous
increase on the investment in research and development. These factors will positively impact
Tesco and thus the company can take up new innovation from time to time for its growth. The
increasing use of internet by the customers will also facilitate the demand of Tesco’s online
marketing (Vu 2016).

6STRATEGY AND THE GLOBAL COMPETITIVE ENVIRONMENT
Legal factors
The economy of UK charges a corporate tax of 20% on the total revenue of the company.
The rate is high compared to other countries. It is a challenging factor for Tesco because they
will have to earn higher profit after paying off the taxes. The economy of Singapore also
maintains stringent food safety rules. Tesco, being a supermarket offers all types of grocery
items and thus tries to maintain high quality product (tesco.com 2017).
Environmental Factors
The government of UK is taking certain steps to protect the environment by reducing the
amount of waste and enforcing various kinds of regulation. The business operations of Tesco
may not have much effect due to the environmental factors. However, the company should abide
by the environmental laws of the country. The plan also aims at maintaining the environmental
sustainability (Mollah 2014).
Porter’s Five Forces
Tesco can assess the various competitive forces in the industry and thus design its
business strategies accordingly. Depending on the five factors, Tesco can decide the various
opportunities and threats in the UK market.
Threat from rival firms
Analyzing the level of threat from the rival supermarket firm, it is seen that UK has a
large number of supermarkets in the food sector which are spread all over the economy to satisfy
the needs of the people. UK market also offers good online service and it is growing by 20%
every year. Asda is one of the key competitors in food sector and it is competing with Tesco and
thus trying to increase its market share. The customers are attracted by other retailers such as

7STRATEGY AND THE GLOBAL COMPETITIVE ENVIRONMENT
Somerfield and Co-op in rural areas. Tesco must try to cater the needs of the people in the rural
areas and provide them the required food products. It must also offer attractive discounts to the
people for the successful growth of its online business (Morgan et al. 2017).
Bargaining power of suppliers
The bargaining power of the suppliers is comparatively low in case of supermarket
especially in the food sector. This is due to the fact that there are many supermarkets and the
suppliers do not want to lose their business from the food market. Moreover, there are a large
number of suppliers in the food market and they offer attractive discounts in order to stay in
competition with the other market players. Tesco, being one of the biggest supermarkets also
gets preference from the suppliers. The low bargaining power of the suppliers in UK will be an
opportunity for Tesco as it can keep its cost low and also offer at a reasonable price to the
customers (Imrie and Dolton 2014).
Bargaining power of buyers
Being a highly developed economy and due to the high purchasing power of the
customers, the willingness of the people to spend in the food sector has increased in UK. On the
other hand, there are a large number of supermarkets available in UK, providing its customers a
wide range of options to choose from. They also have the chance to switch from one retail store
to another, if service and the product quality are not good. The bargaining power is in the hands
of the customers. This can be considered as an effective threat for Tesco. Moreover, it also has to
maintain quality customer service at a reasonable price for its product in order to retain its
customer base. A small hike or reduction in the quality of food products will also result in huge
loss for Tesco (Končar et al. 2015).

8STRATEGY AND THE GLOBAL COMPETITIVE ENVIRONMENT
Threat to entrant
As there are many supermarkets that already exist in UK, it will be difficult for new firms
to enter the market. In order to enter the supermarket industry, the companies will have to make
huge investment and it has to incur the cost initially. Moreover, the companies must also invest a
sum of money on the perishable products such as fruits and vegetables and there are many
companies who do not want spend a huge sum of money. This lowers the threat of new entrant in
the food sector of Tesco. However, entering the UK retail food market through online marketing
is much easier as there are huge growth prospects. Thus it is necessary for Tesco to maintain its
quality of food products and thus deliver to the customers on time (Haslam et al. 2014).
Threat from substitutes
The supermarket industry of UK faces threat of substitutes from the online industry. The
supermarket also faces threat from small retail stores. However, the people of UK prefer to
purchase quality food and so Tesco does not face severe threat from its substitutes. According to
the reports published by different sources, the people of U.K. prefer to do online shopping rather
than visiting the stores. However, Tesco must improve its service quality in order to retain the
customers. It will be challenging for Tesco to offer high quality food products at an affordable
cost. The company can reduce the risk of substitutes by improving their online marketing tool
(Müller 2015).
Trends
Key areas 2015 2016
Market share in grocery products 27.9% 27.8%
Sale of food items 7,564,674 tonnes 9,957, 374 tonnes

9STRATEGY AND THE GLOBAL COMPETITIVE ENVIRONMENT
Key Drivers
A differentiated brand-Tesco is a strong brand which carets long term value. The
purpose of the company is to provide quality products to the customers for everyday use.
Reduction of the operating cost by £1.5 bn- The company is trying to identify the
future opportunities for meaningful savings and thus it will help in reducing the cost base.
Innovation- The main aim of the company is focused on three differentiated capabilities
such as channel, customer and product.
Maximize the mix to achieve a 3.5% to 4.0% group margin- The aim of the company
is to build sustainable profits across different business channels and product ranges (Brannen et
al. 2013).
Attractiveness and distinctiveness of the food industry and Tesco as a firm
The companies such as Tesco are providing an attractive market space to compete with
its other competitors in the food market. However for new organizations, there are certain
barriers to entry and this make the segment less appealing. For small supermarket, the power of
the suppliers must also be taken into consideration because prices will adversely affect the
customers. The overall attractiveness of the market segment will vary according to the scale and
size as well as the market space. Tesco must also keep unique products which are not available in
the other supermarkets. There is also provision that the people get their food items delivered
within the stipulated time frame. They also get 24*7 services. Tesco tries to make shopping
experience better for their customers. People can purchase food materials starting from breakfast

10STRATEGY AND THE GLOBAL COMPETITIVE ENVIRONMENT
to dinner. People can also have their lunch or breakfast or snacks in the restaurant i.e. within the
supermarket (Adewuyi 2016).
Internal Analysis of Tesco
Core Competencies using VRIO analysis
Value-The value denotes the company’s ability to explore the market and also offset the
threat from the competitors with its internal capabilities or strength. Tesco has to implement the
core competencies in its various routine activities. It is necessary to benchmark the performance
standards which may also help in value creation for the company within the next three years.
Tesco has also a leading position in the food market but it is important for the company to
develop the non-food sectors and this will help in creation of more value. The company has
earned reputation by selling quality food products and this will also help in strengthening the
market value of Tesco (Tesco 2014)
Rarity-The various products with which Tesco deals is facing growing competition from
the other supermarkets. Tesco is trying to gain control in the market through provision of
improved technology and more innovative products. The company has created strong impression
in the minds of the people and thus it will help the company to attract more customers. Tesco
does not charge high price from the customers and there is various restrictions on the monopoly
practices adopted by Tesco.
Imitability- Although the co petition in the market is not under the control of Tesco but it
must try to improve its food products. This will also help to identify the core competencies in the
internal organization. The unique competencies will also help in gaining competitive advantage.

11STRATEGY AND THE GLOBAL COMPETITIVE ENVIRONMENT
The other competitors of Tesco will also face difficulty in imitating the wide range of product
and services at a much lower price.
Organization- This helps to identify whether the company will be ready to explore the
resources in the market. Tesco has different stores to capture the potential market. It is engaged
in requisition and this will help in engagement of more professional people in the organization. It
will help in enhancing the competencies and the work efficiency and employees will also be able
to work for the development of the company (Chen 2014).
Benchmark
Tesco is UK’s first retailer that has disclosed the volume of food wastage and it is
working with its suppliers in reducing it. More than 1.3bn tones of food products is wasted
globally every year, according to the report of FAO which is putting pressure on the costing of
the products and on the environment. It is also important to build a food waste footprint for each
product and Tesco has identified the problems and created action plans to reduce the wastage of
the food products. Tesco’s move to share the food waste data has achieved the media coverage
and it was welcomed by the various environmental and food campaigners. Tesco is focused on
reducing the food wastage and it is associated with wider commitments in addressing the social,
economic and health issues which have helped in improving the longevity of the business. The
local retailers need to turn the threat of Tesco into an opportunity and this has been beneficial for
Tesco. It is also beneficial for the competitors and this will help in improving the business of the
company (Wood et al. 2016).

12STRATEGY AND THE GLOBAL COMPETITIVE ENVIRONMENT
Conclusion
Thus, it can be said that Tesco must sell those products which are not easily available in
the market. It must sell unique products which cannot be imitated by other supermarkets and thus
it will help the company to gain strength over other supermarkets. Tesco holds patents for the
products and offers through its own brand called Tesco brand. It has offered more than
10,000food products with its own logo on it. The products range from bread, cereals and many
other consumer goods which are available in different stores. Some food products are Tesco’s
own product and they cannot be copied from other companies. Thus, it can be said that the
company holds strength over other supermarkets which does not have their own brand. Tesco
also carries out different marketing strategies and this will help in better brand recognition and
organizational management. Tesco also offers waste management services which has aimed in
maximization of the welfare of the society. Moreover, VRIO analysis has also helped the
company to get a proper idea of the internal and the external factors and thus it will also help in
managing the policies of the company.

13STRATEGY AND THE GLOBAL COMPETITIVE ENVIRONMENT
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