Business Strategy and Analysis of Tesco - Leeds Beckett University

This report provides a comprehensive analysis of Tesco's business strategy within the UK retail industry. It begins with an overview of Tesco and the UK retail market, followed by an external analysis using PESTLE and Porter's Five Forces to identify opportunities and threats. An internal analysis, utilizing Barney's VRIO framework, assesses Tesco's resources and capabilities. The report includes a SWOT analysis, explores business and diversification strategies, and addresses current issues related to politics and the platform strategy business model. The conclusion recommends leveraging e-commerce, international expansion, and product diversification to enhance growth. Desklib provides access to this and other solved assignments.

BUSINESS MANAGEMENT
Business Management
Business Strategy
Mohsin Farid
Leeds Beckett University
Module Tutor-Francis Patton

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Executive Summary
This report intends to shed light on the aspect of contemporary business
management in the particular context of the UK multinational retail firm, Tesco. The
report begins by its stating the aims and objectives, definition of strategy and an
overview of the firm Tesco and the retail industry of UK. The report next undertakes
an analysis of the external business environment in which it is operational to
determine the threats and the opportunities that galore the organization under
discussion here. The researcher finds that most of the macro-environmental factors
are favorable for the firm however the result of the micro-environment analysis
reveals that the firms faces a high level of business competition in the UK retail
industry. Furthermore, the report also conducts an internal analysis of the firm on the
basis of the Barney’s VRIO framework. This analysis reveals the fact that the
organization has the right kind of resources for the attainment of competitive
advantage and sustainability. The report next undertakes a SWOT analysis of the
firm and finds that the firm has various opportunities like international expansion,
product diversification and others however the fierce competition, Brexit and others
are some of the major threats that the firm currently faces. The report also
undertakes an analysis of the business as well as diversification strategies which are
being followed by the organization under discussion here. In addition to this, the
report also highlights the various issues that the organization is currently facing
related to politics and also sheds light the business model (Platform Strategy) which
is being followed by the concerned organization. Lastly, the report concludes by
recommending three measures that the organization can use to attain a higher level
of growth, namely, use of e-commerce business model, international expansion and
providing beauty, healthcare and other products to the customers.

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Table of Contents
1.0 Introduction.........................................................................................................4
1.1 Aim and Objectives.............................................................................................4
1.2 Strategy Definition...............................................................................................4
1.3 Overview of Tesco and the Retail industry of UK...............................................5
2.0 External Analysis................................................................................................8
2.1 PESTLE Analysis................................................................................................8
2.1.1 Political Factors............................................................................................9
2.1.2 Economic Factors.......................................................................................10
2.1.3 Social Factors.............................................................................................11
2.1.4 Technological Factors................................................................................13
2.1.5 Legal Factors..............................................................................................14
2.1. 6 Environmental Factors..............................................................................15
2.2.0 Micro-Environment Analysis..........................................................................16
2.2.1 Porter’s Five Forces Analysis........................................................................16
2.2.1.1 Bargaining Power of Suppliers................................................................17
2.2.1.2 Bargaining Power of Buyers....................................................................17
2.2.1.3 Threat from new entrants........................................................................17
2.2.1.4 Threat from substitutes...........................................................................18
2.2.1.4 Industry Rivalry........................................................................................18
2.3 Summary...........................................................................................................18
3.0 Internal Analysis...............................................................................................19
3.1 Strategic Capabilities........................................................................................19
3.2 McKinsey 7S Framework..................................................................................25
4.0 SWOT Analysis.................................................................................................26
5.0 Strategic Analysis.............................................................................................27
5.1 Ansoff Matrix.....................................................................................................27

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5.2 Business Level Strategy...................................................................................27
6.0 Issues and Business Models............................................................................29
7.0 Conclusion and Recommendations......................................................................30
8.0 References.......................................................................................................32

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1.0 Introduction
1.1 Aim and Objectives
The aim of this report is to critically analyze and evaluate Tesco’s business
strategy in order to make recommendations on its future strategic directions. This will
be achieved by-
 Critically analyzing and evaluating the external business environment in order
to identify any opportunities or threats
 Critically analyzing and evaluating the internal environment in order to identify
any strengths or weaknesses
 Critically analyzing and evaluating the existing strategic options taken by
Tesco to identify the business opportunities
 Offering recommendations on future strategic options
1.2 Strategy Definition
As opined by Hamilton and Webster (2018), the advent of globalization and
the extensive usage of different kinds of innovative technologies had positively
affected the contemporary world of business in a significant manner. Uhl and
Gollenia (2016) are of the viewpoint that this on the one hand significantly increased
the competition within the spectrum of the business world whereas on the other hand
enhanced the number of choices or options that are available to the customers. More
importantly, in order to not only mitigate the adverse effects of this fierce competition
but also to attain a higher level of financial growth the modern organizations opt for
the use of various kinds of effective strategies (Mugurel-Alin 2018). In this regard,
Erasmus, Strydom and Rudansky-Kloppers (2016) have defined strategies as high
level plans which are intended to achieve one or more goals of the firms under
conditions of uncertainty. More importantly, in the particular context of the business
world the strategies refers to the tactics or a range of measures which are being
adopted by any firm for the attainment of the business goals that they have outlined
for themselves.
The earliest usage of the term ‘strategy’ dates back to the 6th century BC
when it was used in the particular context of the “art of troop leader; office of general,
command, generalship” (Wheelen et al. 2017). However, over the years this notion

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had undergone a substantial amount of change and is being extensively used in the
genre of the business world as well. The strategies formulated as well as
implemented by the firms should be on the basis of the requirements of the external
business environment in which the concerned organization is operational. In this
regard, Prajogo (2016) has noted that an assessment of the external business
environment at the same time reveals insightful information regarding the threats
faced by an organization in the business market. This is important since it helps the
organizations to formulate the kind of strategies which are likely to help them to take
full advantage of the opportunities and also to mitigate the adverse effects of the
threats.
1.3 Overview of Tesco and the Retail industry of UK
Tesco plc, presently trading as Tesco, was founded in the year 1919 by Jack
Cohen and is headquartered in Welwyn Garden City, Hertfordshire, England, United
Kingdom (Tesco.com 2019). It is a “UK multinational groceries and general
merchandise retailer” and also the 102nd largest private business firm of the world in
terms of the revenue generated by it (Forbes.com 2019). More importantly, the firm
under discussion here is known for the wide range of services or products that it
offers to the customers and its product portfolio includes books, clothing, petrol,
groceries, furniture, liquor, telecom, internet, financial services and others
(Tesco.com 2019). In this regard, it needs to be mentioned in the 20th century the
firm used to focus mainly on the grocery products or services however in the 21 st
century the firm taking into effective consideration the needs or the requirements of
the customer base which it serves had diversified its product portfolio
(Retaileconomics.co.uk 2019). This in turn had enabled the firm to offer the above
mentioned and other services or products to the customers in the present times.
The process of globalization had positively affected the business of the firm
under discussion here and it is seen that following the precepts of globalization the
firm had expanded its business into the different nations of the world like Ireland,
India, Thailand, Malaysia, Hungary, Czech Republic and others (Forbes.com 2019).
Furthermore, it is seen that the firm had been able to set-up more than 500 different
stores in the nation of UK itself (Tesco.com 2019). These activities have positively
affected the financial prospects of the firm and the gross revenue generated by the

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firm in 2018 £57,491 million (Statista.com 2019). This in turn had the firm the 3rd
largest retailer of the world in terms of gross revenue and the 9th largest one of the
world in terms revenue (Tesco.com 2019). More importantly, as of 2017, the firm
offered employment to more than 460,000 individuals and the different affairs of the
firms are being managed by John Allan (Non-Executive Chairman) and Dave Lewis
(Group CEO) (Tesco.com 2019). In addition to this, it is seen that the firm in order to
maintain an effective market or brand image and also to contribute in an adequate
manner towards the society, economy and the environment of the world is taking the
help of different kinds of corporate social responsibility (CSR) initiatives like attempt
to stop discrimination, eradicate slavery in Thailand, gender equality and others.
Figure 1: Net Revenue generated by Tesco from 2015-2018
Source: Statista.com
The retail industry of UK over the years had come to form the backbone of the
national economy of UK. As per Retaileconomics.co.uk (2019), the net revenue
generated by the concerned industry in UK in 2018 was more than £366 Billion (5%
of the GDP of the nation) with an average yearly growth rate of 4.3%. In addition to
this, the industry offers employment services to more than 2.9 million people of the
nation and there are more than 294,280 retail outlets in the different parts of the
nation (Forbes.com 2019). In this regard, it needs to be said that some of the most

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important retail firms of the nation are Tesco, John Lewis, Asda and others
(Retaileconomics.co.uk 2019). However, in the recent times because of the
increasing propensity of the customers towards e-commerce these firms are
increasingly embracing the “omni-channel business model” to offer both online and
offline services to the customers (Retaileconomics.co.uk 2019). This is important
because of the fact that the online retail industry of the nation had shown a growth
rate of more than 16% in the year 2018 itself (Forbes.com 2019).

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2.0 External Analysis
Walsh and Dodds (2017) are of the viewpoint that the framework of external
analysis enables the firms to analyze the business environment in which it is
operational and its focus is on the attributes of competitive structure, dynamics,
competitive position, history and others. On the other hand, Schulz and Flanigan
(2016) have argued that an effective analysis of the external environment offers
insightful information to the firms regarding the political, social, economic,
technological, environment, legal and other factors which are likely to affect their
business operations. More importantly, this framework in a succinct manner reveals
that the threats and opportunities which galore the firms because of their business
operations in any business market (Mugurel-Alin 2018). This is important for the
firms because of the fact that it enables them to formulate strategies which in turn
will enable them to mitigate the adverse effects on the threats and take full
advantage of the opportunities.
2.1 PESTLE Analysis
As opined by Morschett, Schramm-Klein and Zentes (2015), the framework of
PESTLE analysis enables the firms to analyze as well as monitor the macro-
environmental factors like social, political, environmental and others which have a
profound impact on the business operations of any firm. This is important because of
the fact that an effective understanding of the macro-environmental factors enables
the firms to formulate the kind of strategies which will be in synchronicity with the
requirements of the business environment in which it is operational (Morden 2016). A
PESTLE analysis of the firm Tesco in the nation of UK would reveal the following
results-

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Figure 2: Components of PESTLE Analysis
Source: (Created by the Author)
2.1.1 Political Factors
Wheelen et al. (2017) are of the viewpoint that one of the most important
requirements of the different contemporary business enterprises is a stable as well
as congenial political condition in which they can conduct their business operations
in an effective manner. As per Meyer, Neck and Meeks (2017), the United Kingdom
has one of the most stable national governments of the world which is being
controlled by the Prime Minister and also the Crown directly. More importantly, it is
seen that the nation is a leader of the Commonwealth nations and also maintains
active trade relations with them (Bettis et al. 2015). Furthermore, the free trade policy
which is being followed by UK and also the percentage of corporate tax that the
different business enterprises of the nation had to pay, that is, 19% makes the
political climate of the nation a particularly suitable one for the conduct of active
trade and commerce (Gov.uk 2019). In addition to this, the national government of
UK gives active patronage to business enterprises and this is perhaps one of the
major reasons for the unprecedented growth of trade and commerce in the nation.
However, the impending Brexit deal is likely to adversely affect the business firms of
UK (Meyer, Neck and Meeks 2017). However, the firm do not have access to the
same kind of political conditions in the other nations like India, Malaysia, Thailand in
which it is operational and this in turn adversely affects the prospects of their
business in the concerned nations.

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2.1.2 Economic Factors
The economy of the United Kingdom is the 5th largest one of the world in
terms of the gross domestic product (GDP) and the 9th largest one in terms of the
purchasing power parity (PPP) (Gov.uk 2019). More importantly, the economy of UK
is the 22nd largest one of the world in terms of the GDP per capita which comprises
more than 3.5% of the entire world economy (Gov.uk 2019). A comparison of the
national economy of UK with the other nations of the world is being offered by the
below given figure-
Figure 3: Comparison of the national economy of UK with the other nations
Source: Hamilton and Webster 2018
As per Gov.uk (2019), the nation has a workforce of more than 32.4 million
and the unemployment rate of the nation is below 4% which ensures the fact that the
organisations have access to the requisite amount of labour. Apart from these, the
borrowing rate that the different business enterprises are required to pay to the
national government is only 0.75% which means that they can have access to the
right amount of funds that are needed for the process of their business operations
(Gov.uk 2019). Furthermore, the high exchange rate of the national currency and
also the low borrowing rate (2% only) makes the economic environment of UK a

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particularly favourable one for Tesco (Gov.uk 2019). The inflation rate of UK is only
2.1% (December, 2018) and the national government had lenient export/important
norms and the people of UK in recent times have shown propensity to purchase
products or services from supermarkets or retail which in turn is a favourable one for
Tesco (Forbes.com 2019). However, the Brexit deal is likely to adversely affect the
economy of the nation and also the different business enterprises of the nation would
no longer have access to the same kinds of business opportunities that they access
to when the nation was a member nation of the European Union (Meyer, Neck and
Meeks 2017). The likely affect of the Brexit deal on the national economy of UK is
being outlined by the below given figure-
Figure 4: Impact of Brexit deal on the national economy of UK
Source: (Meyer, Neck and Meeks 2017)
2.1.3 Social Factors
As opined by Morden (2016), shopping whether it be for groceries and
important products or services or just for leisure forms an important pastime of the
people of UK and people from all age brackets like to indulge in such activities. More
importantly, the people of UK like to buy products or services which are not only
trendy in nature but also cost effective as well (Krahmann 2016). However, it is seen
that the people related to the working class background and also belonging to the
age bracket of 30-55 years of age are the ones who do the maximum amount of