Tesco Business Strategy: Internal and External Environment Analysis

This report provides a comprehensive analysis of Tesco's business strategy. It begins with an introduction to business strategies and their importance, followed by an examination of Tesco's capabilities and the impact of various internal and external environments using PESTLE and SWOT analyses. Part A focuses on Tesco's strengths, weaknesses, opportunities, and threats within the retail sector. Part B delves into an evaluation of competitive forces affecting Tesco, utilizing Porter's Five Forces model to assess the competitive landscape. The report concludes with a discussion of strategic plans for Tesco, considering the insights gained from the preceding analyses. The report highlights Tesco's multinational operations, brand recognition, and innovative technologies while addressing weaknesses such as its scale of operations and past strategic missteps. The report also considers the competitive pressures from rivals like Asda, Sainsbury's, and Walmart and the need for Tesco to adapt to changing consumer trends and the impact of political and economic factors such as Brexit and inflation.

BUSINESS
STRATEGY

Contents
INTRODUCTION...........................................................................................................................1
PART A...........................................................................................................................................1
P1 Capabilities of Tesco and impact of various environments on company...............................1
P2 Analysis of Internal environment and capabilities of Tesco..................................................4
PART B...........................................................................................................................................5
P3 Evaluation of Competitive forces for Tesco...........................................................................5
P4 Strategic plan for Tesco..........................................................................................................7
CONCLUSION................................................................................................................................8
REFERENCES..............................................................................................................................10

INTRODUCTION
Business strategies plays a very important role in building a business and effectively
managing it. The role of strategies in business cannot be undermined they played a very
important role in giving shape to business. The main responsibility of framing business strategy
is on the top management of the company and the responsibility To implement those policies and
procedures lies with managers and subordinates of the company. Thus, it can be said that without
a proper strategy a company cannot stand in a competitive market (Ireland, Hoskisson and Hitt,
2012). Tesco is a big retail company which is operating in UK and worldwide, the company is
having various stores around okay in which almost all the brands and their product airport so that
consumers can choose the brand of their choice. It is having diverse operations in various
countries and is committed to grow beyond Europe by investing heavily in some of the emerging
markets as well. For this purpose the company is making sure that right kind of business
strategies is framed for the company.
PART A
P1 Capabilities of Tesco and impact of various environments on company
Tesco is the big company in the retail sector and having diverse operation within the
sector. It is having various suppliers of goods and they would want to have their products being
showcased in the big store of Tesco. The company is having distinct capabilities in terms of its
operations and management. There are various factors that affects business directly or indirectly.
These factors can be internal or external. For the P purpose of analysing these factors Pestle and
Swot analysis of Tesco will be done (Sia, Soh and Weill , 2016).
PESTLE Analysis
It is the analysis of various external factors that could affect the proper management of
business as well as organisation. It is this quite important that Tesco being a large company
conduct a proper PESTLE analysis of its environment so that effective strategies can be framed
for taking business forward and increasing the efficiency level of the business going forward.
Political
It refers to the political environment that exist within our country and in which the
company has to operate. The most important element of political factors of political parties and
the parliaments of the nation in which the businesses operating. They are the one who are
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responsible for framing laws as well as regulations which will impact overall functioning of the
business in general. Tesco is facing various political turmoil due to the fact that United Kingdom
has decided to exit from European Union. This has resulted in various issues for the company
because the different free trade agreements that were sign the United Kingdom with European
Union has came to an end and has impacted the business of the company in some of the countries
of Europe. Being a established company of UK it has to make various changes in its policies and
procedures in order to grow its business and sustain its competitiveness. Because of various other
free trade agreements that can take place, the company has decided to invest in various countries
of Europe like hungry, Germany and some of the parts of France (Champoux, Durgee and
McGlynn, 2012).
Economic
It refers to various economic factors that would have a direct impact on the industry and
the business of the company. The various economic factors could be inflation , deflation, interest
rates, monetary policy, and some of the political decisions that would impact the overall health
of the economy. Economically speaking, the retail sector of UK has shown growth in the past
years and have consistently outperformed various other sectors within the economy. Thus it can
be said that Tesco operates in the sector which is quite important from the point of view of
consumers. The company and its management are framing necessary strategies for the purpose
Of effective management of the business. They make sure that any changes within the economic
environment of the country would not be adversely affect affecting the overall business structure
of the company. Retail sector is the sector which is impacted heavily by the kind of inflation that
prevails within the economy. The level of inflation is high the consumption of customers will go
down and therefore ultimately impact the business of Tesco adversely. The company is framing
necessary strategies to overcome these issues (Grant, 2016).
Social
There has been a shift in the generation of UK. The number of elderly people is
increasing in UK because of the fact that the birth rate is going down the life expectancy of
people is rising. The management of Tesco should incorporate this factor while making strategies
for its consumers. The recently plan launched by Tesco for online portals where shopping can be
made easily Amit keeping in mind the mobility issues of elderly people. This has created a
positive image of the company in the eyes of consumers and has given various benefits to the
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company. The plan to launch online portal of Tesco has came after the research that has shown
that elderly people are more interested in purchasing through online mediums rather than going
to stores by themselves and making such purchases (Favaro, Rangan and Hirsh, 2012).
Technological
One of the most important factor which drives business is the technological up gradation
that it had in its operations. Tesco needs technology for the purpose of its supply change
management. A company can achieve cost efficiency. if it is having a right kind of supply chain
management which is upgraded through proper technological implementation. Such cost
efficiency would give the company an edge over the other competitor and will increase the
goodwill of the company because they will be able to serve customers well.
Legal
It refer to the legal laws that exist in our country and which might affect the business of
Tesco. Tesco deals in various products as well less markets; therefore it gets affected by various
policies of the government that would have a direct impact on companies profitability. Some of
the law is framed by the government regarding agriculture produce has created strain on
company’s profitability.
Environmental
It refers to the environment in which the company operates and how the business of
company has impacted the same. Tesco is committed to reduce its energy consumption by
making necessary investment and strategies for the purpose of saving environment and its
degradation (Jensen and Berg, 2012).
SWOT Analysis
Strength
Tesco is a multinational company which is having operations around the world. The
company is having a very good brand which is just lesser then IKEA and it is well above then
eBay. it is having 6784 stores around the world and has grown 400 stores since 2012 and this has
contributed in company’s strength. It uses various innovative technology for the purpose of
making a life of its consumers easy. Tesco has launched Tesco Metro and Tesco express for its
consumers who live in a small neighbourhood so that they can get there and make purchase
conveniently.
Weakness
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It refers to the Weakness that a company possess and might stop it to reach to its full
potential. The biggest weakness of Tesco is it’s a scale of operations. The company is having
various stores and is diversified into different sectors because it keeps products of various
companies in its hypermarket. Some of the weakness also include the Tesco’s decision to enter
into markets of smart phones and tablets, which does not turn out to be good and has impacted
the profitability of the company (Leonidou and et.al., 2015).
Opportunity
The company do have very supportive and eighties to expand its business in different
markets like China, India, Indonesia, Brazil and some of the other emerging markets which is
growing rapidly and offers return on investment more than any other developed countries. The
company shall make necessary business strategy to expand its business in these market
effectively.
Threats
The biggest threat to Tesco is it competitors which are Asda, Sainsbury, Aldi etc. in UK
which are growing the business substantially. The company is also facing pressure on global
level because of a giant competitor like Wal-Mart. It is growing into UK as well and is eating up
the market share of Tesco which is not a good sign for the company. It shall make necessary
strategies to overcome these competitive pressures and at the same time maintain its brand and
goodwill (San Martin-Reyna, and Duran-Encalada, 2012).
P2 Analysis of Internal environment and capabilities of Tesco
Tesco's qualities are, Tesco is positioned third biggest basic need retail organisation on the
planet. The organisation held 30.7% offer of the UK basic supply retail showcase in 2010.
Money related execution of the organisation has not heavily influenced by the retreat, it has
indicate development at all levels of business, this underlines organisation’s Strategic capacities.
Information indicates £ 54billion turnover recorded , which is 14.9% more than 2008. This
would be the consequence of key decision of customisation of item as market requests. In a
decade ago organisation’s proficiency in execution developing. Tesco's technique points convey
items and administrations at moderate value, suits to clients' needs and keep up quality
guidelines. A year ago's online deals was up by half.
There is no flawless market, thus every organisation has a few shortcomings. Tesco has it as
well. Tesco have being attempting to perform in 2009-2010 contrast with its past execution and
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that of it matches as well. Tesco's esteem lines has booked misfortunes because of organisation’s
system of conveying less expensive items. It's rivals like Sainsbury's and ASDA increased upper
hands by giving quality item at sensible cost. Company still rely upon UK retail showcase for
producing real income nearly up to 75%, as UK is still not announce out of retreat. This would
be significant difficulty for geographic broadening technique (Muduli, 2012).
The company has various potential is like lean supply chain management and generation of
values through efficiently managing its operations. The company is having an accident goodwill
in the market and is leading the retail industry with margin. The company is focusing More on
making their customers their priority and therefore Framing strategies which will be beneficial
for both company as well as consumers going forward. Tesco has also been able to implement
various technological gradation within company which has Benefited both individuals working
within employs and outside customers of the company. Tesco follows both cost leadership and
differentiation strategy, under cost leadership it tries to maintain its cost by implementing various
decisions regarding supply chain and distribution. Under differentiation, the company tries to
make it stores a bit more unique and competitive then other companies in the same business.
PART B
P3 Evaluation of Competitive forces for Tesco
For the purpose of analysing the competitive forces that act this within industry, it is necessary
that a proper analysis of the structure of that particular industry is conducted. Only after knowing
this forces proper strategy can be framed regarding competition. Porters five forces model is the
best theory theory for analysis and evaluation of these competitive forces. A Proper analysis of
porters five forces model for Tesco has been described as follows:
 Threat of Substitute: It refers to the threat that a competitor may bring certain products
or services which might substitute the current product or service of the company and
therefore may result in the loss of customers market share as well as profitability of the
company in general. A company like Tesco Shall make sure that its competitors does not
able to copy its products as well less services which it provides to its customers and
consumers if the company fails to do so it may end up losing its market share and this
will affect overall productivity of the company.
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In the sustenance retail showcase, the substitutes of significant nourishment
retailers are little chains of accommodation stores, off licenses and natural shops which
are not seen as a danger to general stores like Tesco that offer brilliant items at
impressively bring down costs. In addition, Tesco is further getting hold of these shops
by opening Express stores in nearby towns and downtown areas making an obstacle for
these substitutes to enter the market. In any case, the danger of substitutes for non-
sustenance things, for example apparel, is genuinely high. It ought to be noticed that as
the financial retreat wins, clients will be slanted towards marked down costs henceforth
Tesco is a risk to the claim to fame shops.
 Threat of new entrant: It is the threat that any new competitor may come within the
market and acquire the market share of the company as Well as destroy the customer base
of the organisation. Tesco deals in retail sector there the level of competition is quite
high, therefore various competitors like Asda, Walmart, is already present within the
market of UK. But any new entry for competitor will further increase the market and the
company may end up losing it share, if it will not focus on its quality and service delivery
to its consumers (Ritchie., 2013). A new entrants within the retail industry of UK is
highly unlikely because the amount of investment that is required is quite huge and the
quantum of resources also makes it difficult for any company to compete on a sustainable
basis. For a new entrant, the company will have to Bring something extraordinary on
table like, sufficient quality with minimum prices are excellent service delivery to
consumers. Otherwise, it would be very difficult for any company to enter into the
industry and sustain for a longer period of time.
 Threat of existing Competition: The level of competition within retail industry in UK is
quite high and therefore it becomes extremely difficult to operate within this industry, if
the company is not having a good brand image and reputation then it is highly unlikely
that a business will be able to prosper or make profits on a sustainable basis. There are
various competitors within this industry which has became cold good in size, some of the
examples include Asda, Sainsbury, Walmart etc. these companies do have a ticket
resources to compete with Tesco, and Tesco will hurt have to bring something on the
table which is different then these companies, otherwise consumers will switch to these
companies who are offering almost the same kind of quality as well as services for their
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products. Tesco faces serious rivalry from its immediate rivals, including Asda,
Sainsbury's, Morrisons and Waitrose, which are contending with each other over value,
items and advancements irregularly. It ought to accordingly be featured that Asda is one
of the key rivals in this fragment with an expansion of piece of the pie from 16.6% to
16.8% amid the financial year 2016. while Sainsbury's has demonstrated an increment to
16.1% from 15.8% and Morrisons to 11.6% from 11.3% through a similar period. The
moderate market development basically implies that these expanding pieces of the pie
from contenders have heightened the market contention, which is undermining Tesco's
market authority position. In provincial zones where the closest superstore can be some
separation away, some essential shoppers are pulled in by retailers like Somerfield and
Co-operation (McGrath., 2013). Bargaining Power of Buyers: Bargaining power is a very important thing in the field of
business. Buyers do have a bargaining power to switch over to another brand or
company, if the products offered is not satisfactory or even if it is having a minor
differentiation then the other company. The level of competition in retail sector is quite
high and there are various competitors like Asda, Sainsbury, Walmart having almost
same kind of products and services and within the same price range, therefore, the buyers
to have the power to switch over to other companies in no time and this constraint the
profitability of Tesco in the future (Sanden, 2014). The company should implement
various strategies For the purpose of coping up with the situation and maintaining its
competitive position. Bargaining power of Suppliers: suppliers also to have the bargaining power with
companies to get a fair price for their produce. But as far is the retail industry of UK is
concerned, the bargaining power of suppliers is fairly low because of the fact that most of
the suppliers are inclined towards supermarkets who offers them a good price along with
purchases that are being made in bulk. Therefore companies like Tesco, Asda, Sainsbury,
Walmart do have an upper edge with the suppliers in terms of getting a fair price deal
(Linder and Williander, 2017).
P4 Strategic plan for Tesco
Tesco is the big multinational company, it is having diverse operations around the world
and therefore, it is important that right kind of a strategic planning is done so that company is
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able to benefit from various positive factors that it already possess. Some of these factors include
good brand image, low-cost, high-quality offering, better service delivery etc.
The most important part of framing a strategic plan would be to develop A mission statement
which will not only guide individuals within the company that what the management of the
company wants and how it see the company in future. The next time after wearing a mission
statement would be to set goals that achievable that has to be achieved by the people are working
within the company. These goals can be in terms of quantity of quality. The quantity can be that
revenue that needs to be achieved,Level of profitability. As far as quality is concerned it can be
the working environment provided by the company, the management quality, the quality of
policies and procedures as well as the kind of culture that prevails within the company.The goals
can be long-term or short-term. The long-term goals would be to make company much more
productive and profitable along with taking care of all the needs of the society. The short-term
goals can be to achieve a desired number of sales (Lai, Melloni and Stacchezzini, 2016).
The company should think of reducing its prices by offering high-quality services
through the products“ that it offers. The company should aim at reducing its overall cost so that
profitability can be increased and this will benefit all the stakeholders of company like
employees, customers, suppliers, shareholders etc. It should bring new offers and discounts for
its consumers so that they stick with the company and does not think about switching over to
some of the other competitors. Company should also Premier strategies to overcome various
barriers that are being put by its competitors in terms of level of class quality, prices, and service
delivery (Werner and Xu., 2012).
CONCLUSION
It is quite clear from the above discussion that for a business organisation to grow and
prosper It is highly Essential that right kind of business strategy is frame and followed
accordingly. For the purpose of framing a business strategy, various factors have to be
considered by the management of company, this sector is to have influence on how the company
will operate and can impact the decision making of managers. Some of these factors include the
internal analysis as well as external analysis of the environment in which the company operates.
The external environment is consist of various factors like political, Legal, social, technological,
environmental. On the other hand internal factors would include the company the strength,
weakness, opportunities etc. for the purpose of assessing the current strength of company itself
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and other competitors there is a need to analyse the various forces as laid down by Michael
Porter. Porters five forces model will give explanation about the various forces which makes the
structure of an industry. hence, it can be said that for the purpose of planning and making
strategies for business good and proper analysis of all the factors that surrounds the company can
make it easy for Management to effectively as well as efficiently manage the company.
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