Strategic Management Report: Tesco PLC's External Environment Analysis

This report provides a strategic management analysis of Tesco PLC, a British multinational grocery and merchandise retailer. It begins with an introduction to strategic management concepts and then applies them to Tesco. The report uses the PESTLE framework to evaluate the external macro-environment affecting Tesco, considering political, economic, social, technological, legal, and environmental factors. It also employs Porter's Five Forces analysis to assess the competitive intensity within Tesco's industry. Furthermore, the report examines Tesco's mission statement and its alignment with market demands, focusing on improving health and lives through its products and community engagement. The analysis aims to provide a comprehensive understanding of Tesco's strategic position and the challenges and opportunities it faces in the global market.

Strategic Management

Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
TASK 2............................................................................................................................................5
TASK 3............................................................................................................................................8
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Strategic management includes the formulation of strategies and implementation of objectives
and goals of a business. The strategic management involves deciding the aims and objective of
business by analysing the internal and external environment of organisation. After deciding the
aims and objective, the business decided the tactics and strategies through which it can achieve
that goal. Strategic management is considered as a major factor in planning. A business uses
various strategies plans and methods such like SWOT, PESTEL, and VRIO and so on to make
their strategies more strong and appropriate. For reference purpose this report has taken an
example of a company, Tesco (Ward, 2012). Tesco is a British multinational company which
deals in groceries and general merchandise. It is a retail company which was established in the
year 1919 by Jack Cohen. Tesco has a total of 6800 stores at different locations and serves the
countries like United Kingdom, Ireland, India, Thailand, Malaysia, and Poland and so on.
This report talks about the external environment which affects the activities and
operations of the company, the missions and visions of Tesco. The report also covers
strategic competencies and strategies which are used by the company which has lead him to
get this successful.
TASK 1
Tesco is one of the biggest supermarket chain of UK which has a market share of more than
27%. It is present in many countries all over the world because of which it has a very dynamic
macro business environment. PESTLE framework can be used effectively to understand better
the external environment of Tesco Plc Ltd.
PESTLE analysis of Tesco Plc Ltd:
PESTLE analysis is a tool which is used to evaluate and forecast the impact of macro-
environmental factors that are relevant for an organisation. This tool is very useful for pre-
determining any opportunities or threats. PESTLE is an acronym for Political, Economic, Social,
Technological, Legal and Environmental factors. Each factor and its impact on the organisation
is being analysed below:
Political factors affecting Tesco Plc Ltd:
These include factors such as political stability or instability, government policy, trade
policy, corruption etcetera. Global political environment creates a massive impact on the
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operations of Tesco since the company operates internationally (Williams, 2012). Increasing free
trade policy between the countries that enables an organisation to expand its business beyond the
national boundaries is a huge opportunity for Tesco plc ltd to increase its presence in the
international markets and generate more revenue at a global scale. Brexit has had a huge impact
on the supermarkets of the UK, big chains like Tesco are being forced to procure more and more
materials from the suppliers within the country at a higher price generally which has led to an
increase in the cost of the product. This can prove to be a huge threat for Tesco unless the
management comes up with some strategy.
Economic factors affecting Tesco Plc Ltd:
Economic factors include elements such as economic growth rate, tax rate, currency
exchange rates, disposable income of people, inflation etcetera which have a direct impact on the
effective demand in the economy (Vu, 2016). Income and the purchasing power of the
consumers all over UK has declined significantly due to many factors such as inflation and low-
pay rates which came into play as a consequence of Brexit. Tesco plc ltd. is highly dependent on
the markets within UK for the most part of its revenue. Company has a market share of 27% in
the country. The management of the company needs to plan strategically to empower and
increase its operations in other emerging markets of developing countries to decrease its reliance
on the domestic markets.
Social factors affecting Tesco Plc Ltd:
Social factors include demographic features like population growth, age-distribution,
lifestyle, health concerns etcetera. Tesco has started offering a wide range of non-food items as
well due to the recent trends of ‘bulk-shopping’ and ‘one-stop shopping’ in UK. Type of
products and services demanded by the consumers is highly influenced by the values, beliefs and
attitude of the population (Srdjevic, Bajcetic and Srdjevic, 2012). Consumers these days are
becoming more and more aware of health issues and their concern for safety is rapidly increasing
which has increased the demand of organic food items. Tesco has recently launched a new range
of organic food products keeping in mind the changing trends of consumption.
Technological factors affecting Tesco Plc Ltd:
Technological factors refer to the advancements and innovations in the field of
technology that affect the operations of the business or the industry as a whole. The recent
technological innovations have fostered the growth of a new sales channel of online sales. This
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platform has a huge potential for increasing the sales of supermarket chains like Tesco. Tesco
has been making efforts to take its business operations online and generate more revenue out of
e-commerce (Samantara and Sharma, 2014). Inventory management technologies has helped the
companies in reducing the costs related to the inventory and increase the profit margin.
Management of the Tesco ltd needs to be very attentive to these changes because these are
definitely a huge opportunity for the firm.
Legal factors affecting Tesco Plc Ltd:
Legal factors include various rules and laws like consumer protection laws, trade laws,
labour laws etcetera. Legal factors poses threat for Tesco since the company operates in many
countries all around the globe and every country has its own rules and regulations. Also, Tesco
has faced some lawsuits in the recent past (Policy, 2016). Thus, the management of the Tesco plc
ltd should employ a team of considerate resources for scanning the legal horizon and it should be
aware of what is allowed and what is not allowed within the territory it operates.
Environmental factors affecting Tesco Plc Ltd:
Factors related to ecological balance and environmental aspects such as climate change
and global warming have come forefront in the last few years due to more increasing awareness
among the people. Tesco is one of the few companies that committed to mitigating its carbon
emission and minimised the generation of waste produced long ago. Thus, the management of
Tesco ltd. should plan strategically to take full leverage of the early lead that the company has
gained in this aspect of its macro-environment (Rothaermel, 2016).
It can be concluded after the PESTLE analysis of Tesco Plc Ltd. that the company has
many opportunities present in its macro-environment with respect to the recent economic
changes and technological developments although some attention is required when it comes to
the legal compliances.
To understand the current industry scenarios which the company is facing within its existing
market domains, porter’s five forces analysis is done.
Porter’s Five Forces analysis for Tesco plc ltd:
Porter’s five forces is a model which is used to identify and analyse the five competitive
forces within every industry which shapes the organisations and explain why different
organisations are able to sustain different level of profitability. Here is a porter’s five forces
analysis of Tesco plc ltd:
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Competitive rivalry:
Intense competition exists in the industrial environment for Tesco due to the presence of other
big supermarket stores like ASDA, Aldi, Sainsbury etcetera that offer the same products and
services at competitive prices (Nixon and Burns, 2012). This reduces the product switching costs
for the buyers and they can easily buy products from other supermarkets which affects the sales
of Tesco. This has led to price-wars, product innovations, intense marketing and advertisement
strategies and huge discounts being offered by the all big 4 players in the industry. All these
factors have forced Tesco to provide additional discounts to increase its sales and attract more
customers.
Bargaining power of buyers:
The bargaining power of the customers of Tesco is relatively high due to the existence of
many other supermarkets like ASDA, Aldi, Sainsbury etcetera offering the same products at
competitive prices. Switching cost is also very low or negligible due to which consumers often
prefer buying from other stores at discounted prices. This has led to a decrease of about 0.3% in
the market share of Tesco within UK and Tesco has also slashed prices of many of its products to
stay competitive.
Bargaining power of suppliers:
The bargaining power of suppliers of Tesco is very low due to the presence of many
suppliers in the industry and suppliers that change their prices frequently can be easily replaced
with other suppliers which gives Tesco the opportunity to procure its products at the lowest cost
possible and increase the profit margins (Hitt, Ireland and Hoskisson, 2016).
Threat of substitutes:
Threat of substitute products or services is high for retail supermarket chains like Tesco
plc. This threat is particularly high in grocery market. Substitutes for the products that are being
offered by Tesco can come from other retailers in the market that cannot just offer the good
quality products but also very competitive prices. There are many substitutes available not just
for food items but also for the non-grocery items such as clothing, electronics etcetera.
Threat of new entrants:
It is extremely difficult for new firms to enter into this industry and compete with
supermarket stores like Tesco which has chains all over the world considering the amount of
financial and other resources that are required (Hammad, 2015). So, the threat of new entrants is
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low for Tesco. However, it is possible to open a store at a local level and develop a customer
base locally by offering discounts and other incentives. So it would be rather wrong to conclude
that this threat is non-existent for Tesco plc ltd.
It can be concluded after the porter’s five force analysis for Tesco plc ltd that it operates
in a very competitive industrial environment and even the slightest change in its pricing would
create a huge impact on the sales. It is very important that the management of the Tesco
understands the implications of these forces and try to take advantage of the forces that are in the
favour of the organisation.
TASK 2
A vision statement is a very crucial business tool for any organisation that helps in establishment
of the growth target for the company (Evans and Mason, 2018). A mission statement is of the
same importance as well for any corporate. A vision statement of any organisation has the
objective of aligning its business operations with its customer expectations helping the company
in increasing the goodwill. Mission statement of any organisation lays emphasis on making sure
that everything goes according to the plan to meet the needs of the clients and stakeholders.
Tesco has a background of coming from a very tough economic conditions and rising from a stall
to a supermarket chain spread across the world. The vision and mission statement of the
company has played a vital role in the success of the organisation ever since its foundation in
1919.
Mission statement of Tesco is “We make what matters better, together” which goes in
alignment with the market demand. This statement has three important parts:
Improving health: Tesco has the reputation of having uncompromising attitude when it comes to
the health and safety of its customers (Dobbs, 2014). All the products that are being offered by
Tesco are designed according to the health and safety standards set by the government of various
political regions. As consumers are becoming more concerned and aware about health, the
demand for products with health benefits is increasing in the market. This part of the mission
statement goes perfectly in line with the trend of consumer demand in the marketplace.
Improving lives: Tesco has the philosophy of ‘Every Little Help’ which helps the company to
understand and at the same time acknowledge the differences that every small help can create in
the lives of those people who are in need. The company is committed to make the world a better
place by reaching out to the communities and people who are in need and making every little
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effort that triggers positive change. Consumers are becoming more aware of the social
responsibilities of these companies and prefer to associate themselves with an organisation that
fulfils its social responsibility as well (Dermol, 2012).
Distinguished quality: Tesco makes sure that the products and services that it offers in the
market are of the best quality. With the economic growth in developing countries and the
increase in disposable income of the people, consumers these days prefer to buy products of
good quality even if they have to pay a slightly higher price. This part of the mission statement is
in alignment with the growing demand for goods of better quality in markets all over the world.
Tesco’s vision statement is “to be the most highly valued business by: the customers we
serve, the communities in which we operate, our loyal and committed colleagues and of course,
our shareholders.” It lays emphasis on the importance of satisfaction of shareholders for the
company. The vision of Tesco has two important parts:
Most highly valued enterprise: It shows that the company has the vision of becoming the
most highly valued business by being committed to fulfil the needs of all its stakeholders in
different ways to guarantee their loyalty.
Flexibility for everyone: Tesco makes sure that it has the ability to serve everyone in the
market including people who shop online to become a brand which is favoured by everyone.
A brief analysis of the mission and vision statement of Tesco plc ltd. shows that the company has
strategically planned in deciding their mission as well as future vision which helps the company
in carrying out the operations in a particular direction to achieve the goals and targets (Brannen,
Moore and Mughan, 2013). The mission of the company is well-aligned with respect to the
demand in marketplace of products that are better in quality and are safe for consumption.
The strategic competences and capabilities of Tesco can be analysed through VRIO model.
It is a model in which both the internal and external assessment of an organisational environment
is done. VRIO stands for value, rarity, imitability and organisation. The organisations use this in
determining their future strategies and tactics. Through this model a company knows about the
organisation competencies from which they can attain competitive advantage. The VRIO
analysis of Tesco is as follows:
Value: The company Tesco has valuable financial resources which it has it has purchased
them from his own profits. Tesco also has strong financial stability which is of very great value
to the company. The company also has valuable market reputation, the goodwill into the market
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of the company will be in millions worth. The human resources are also valuable for the
company as they have hired the people with skills and knowledge. Also the company spends
valuable amount onto the training and development of their employees and through these
training the company makes its employees professional. The brand is known by most of the
population. The brand depicts some value to its customers as it has become very successful in
satisfying them. Apart from this the company’s distribution channel through which it sends the
goods or products to the stores and stores to the customers is very strong. Good distribution
channel acts as an asset to the company as it saves both time and cost. Along Tesco successful
satisfies the needs of its customers by providing wide variety of products to them and that too at
low prices.
Rare: The financial resources and value of the company is very rare. For normal company it
may take a long to develop such strong financial condition. The company’s goodwill is what
which makes it rarer from others. Since its establishment the company has successfully creates a
rare goodwill into the market space (Brannen, Moore and Mughan, 2013). The customers feel
safe when to buy products from Tesco retail store. The professional employees bring rarity to the
company as it is very rare to find so professional and skilled workers into the workplace.
Customers feel good by seeing the knowledge and the helping nature of staff. The brand has a
rare reputation which makes it different from other competitors. Also the distribution channel the
company has adopts is very rare that it saves cost for the company through which it can save its
cost and gains the competitive advantage. The customers rating given by their own customers are
very high making them rare into the market. The company serves the customers by providing all
ranges of products and all the variety of products. A person can find his entire product which he
would need less than one roof that counts as a rarity of the organisation.
Imitability: Imitability refers to the level at which a company or person can copy the
resources, ideas, structure and etc of another company. The imitation of company’s financial
resources can be possible if another company focus upon it. The professional or skilled
employees can be trained or can get hired by the other companies if they want to. Also other
companies can make or adopt the distribution channel which can speed up their process of
bringing the products or goods to the store and this also saves the money for them through which
they can create or gain competitive advantage. Other companies can also satisfy their customers
by providing them the wide variety of products and services. The other companies can easily
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imitate Tesco. But the goodwill which the company has yet developed cannot be imitated by any
other company so easily. Making or developing a trust worthy goodwill takes time. It takes time
to customers to trust on a company or product. Hence goodwill plays a strong competitive
advantage to the company.
Organisation: The organisation has positive market reputation which works as an asset for
it. Tesco also is a dominant player into the market and act as a leader. The company is well
known to majority of population or people making it very many popular markets. Tesco also has
a large market share when compare to the other available company of its kind. Tesco enjoys the
high customer ratings along with the good goodwill. The company acts upon the competitive
advantage by reducing the cost from many sources like saving costs from distribution channels
or storing the products at warehouses and so on.
TASK 3
Every company follows some sort of strategies or tactics to achieve the planned goals and
objective. The company tries to opt for different strategies which can make it different from
others and can help them in achieving their desired goals. Therefore strategic management
plays a vital role in every business. Similarly is the case with Tesco, the company has uses
different strategies which have helped it in being at the position it stands now.
As in the year 2009, there were only few players into the market which deals in the
supermarkets, hypermarkets and so on. In that particular year, there was a hike in the
demand of food industry making opportunities of Tesco to expand it. The company took the
opportunity and expands itself at much location. During the year as there was a boom into
food industry the company yield many profits through expanding itself. Also at that time
there were only few player, the company Tesco gain benefits from that.
The company also make use of digitalisation very wisely. There were only few
companies which manage itself in expanding itself overseas. Majority of the companies fail
also but Tesco has makes itself stand out from the crowd. The company has earned a respect
and administration from the market and its shareholders. It adopts the ambitious strategies
for overseas and makes the successful online delivery services.
Tesco has puts its step into those regions or countries which are emerging, developing or
are developed through expanding itself. Tesco puts more emphasis upon the cultural habits
and preferences when to expand itself into a region. The company analyses the buying habit
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and taste of that particular region and accordingly serves that region. This also enables the
company in gaining competitive advantage as they provide the products and services
according to the preference of market and people.
Tesco also has effective supply chain which helps the company in transferring the goods
and products from one place to another in minimum time and cost possible. The company by
effective supply chain can create the place utility by providing the products at the right place and
also can create time utility by providing the products to the customers at the time when they need
(Akoor-Shahul, 2015). Effective supply chain also saves the cost for the company and through
that additional cost saving, the company can offers lower prices of products to the customers
creating a competitive advantage for them.
The Tesco stands upon the strategy of cost advantage. This major advantage is that it
provides the products at lower prices to its customers. The company choose the strategy
which helps it in saving the cost at many places without bringing any kind of compromise in
its functions and operations. The cost which it saves uses it in lower the prices of the
products which helps the company in attracting more and more customers towards it.
The company also makes the proper use of digitalisation. The company uses information
technology system into its management. Through information technology the company can
keep an account about the stock which is available with them at store, at warehouses and at
different locations. Through information technology the company needs not to manage the
records on paper, they have a full fleshed system where they can edit the information. The
system also keeps the information about the inventory which are about to get out of stock so
that the company can order for more at time. The management information system also
stores the information about the employees who are working with the company. Through
that information the company can take out the information which the organisation wants
about any of his employee. Advance in technology saves the time and cost for the company.
Information technology has does the same for Tesco, it has saves the time, cost and also the
efforts in maintaining the data or records.
The values and mission which company carries, it has tries its level best to stand upon
them. The company makes the world a better place by delivering the good quality products
to the customers. Tesco has successfully linked its mission and vision to its business
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operations and activities. This also proves that the company is determined and committed to
its mission and values it portraits before people.
Tesco also satisfies its customers by through many ways. This includes satisfaction
through providing the wide range of products and services with broader variety to the
people. The company also satisfies its customers by the prices of products it offers to their
customers (Aithal, 2016). The basic reason of customers to choose Tesco is for the prices it
offers to them. Tesco also satisfies the customers by providing them with seasonal or festival
offers and discounts, credit point system, coupons, and many more which attracts the
customers to shop from them.
CONCLUSION
From the report presented above, the importance of strategic management has been high
lightening. The strategic management refers to the formulation of tactics which an
organisation uses to achieve the desired goal or objective. The report covers about the
mission and vision of the company Tesco. Along with it many analysis such a SWOT,
PESTEL and VRIO has been performed of Tesco to evaluate about the internal and external
environment of the company. The report also covers the various strategies used by the
company to make that successful which it is at today.
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