Business and Business Environment Analysis: Tesco's Performance

This report provides a comprehensive analysis of Tesco's business environment, focusing on both micro and macro factors that influence its operations. The report begins by identifying the positive and negative impacts of the microenvironment on Tesco's business, with a detailed examination of demographic, political, ecological, economic, technological, and socio-cultural forces. It then conducts an internal and external analysis of Tesco, identifying its strengths and weaknesses. The report further explores the interplay between organizational strengths and weaknesses and external macro factors. It analyzes the structure, scope, and size of different organizations to link with product offerings and business objectives. The analysis also includes the application of the PESTLE model to support microenvironment analysis and the TOWS matrix to justify the influences of decision-making. The report concludes with an overview of the findings and their implications for Tesco's strategic management and future performance within the competitive retail landscape.

Running head: BUSINESS AND BUSINESS ENVIRONMENT
Business and Business Environment
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Table of Contents
Introduction......................................................................................................................................2
P4 Identifying both positive and negative influences the microenvironment has on the business
operations.........................................................................................................................................2
P5 Conducting both internal and external analysis of Tesco in order to identify strengths and
weaknesses.......................................................................................................................................6
P6 Explaining the strengths and weaknesses of the organisation that can interrelate external
macro factors...................................................................................................................................9
M1 Analysing the structure, scope and size of different organisations to link with product
offerings and business objectives..................................................................................................10
M2 Analysing the advantages and disadvantages of interrelationships between organizational
functions and impact upon organizational structure......................................................................11
M3 Applying PESTLE model to support analysis of microenvironment......................................12
M4 Applying TOWS analysis and justifying the influences of decision-making.........................14
Conclusion.....................................................................................................................................16
Reference List................................................................................................................................18

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Introduction
Business environment defines all the internal and external factors that can affect
organisational functions including management, customers, employees and demands. Moreover,
the condition of supermarket industry is determined by the competitive condition in the market
performance. Business environment is the sum total of all the factors that affect an organisation.
In this study, private, public and voluntary organisations will be chosen in order to justify the
factors. Organisational size, type and scope will be described on three types of firms and
relationship between firms’ structure and departments will be explained. Moreover, business
environment is related to business decisions and these decisions are needed to be taken based on
both macro and micro environmental factors. Strengths and weaknesses of the firm will be found
out and their impact on macro-environmental factors will be justified.
P4 Identifying both positive and negative influences the microenvironment has on the
business operations
Tesco is one of the major players in the supermarket industry in the UK. During the time
of 2004, Tesco had the market share of 10.3% and now, Tesco has the market share of 15.2% in
the supermarket industry (Yu et al. 2014). External culture and other market players who are
competitors in the market of Tesco impact heavily on Tesco’s business strategies.
Demographic forces:
Demographic factors impact on the business of retail industry as demographic force is
related to the people. People in the retail industry are the customers of the retail sector and their
size, density, age and gender. The large and diverse population can impact both opportunity and

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pose the challenge to the business. As stated by Fernie and Sparks (2014), changing
demographics can change the market and organisations need to adjust the market. In case of
Tesco, it is in the retail industry and it offers a vast amount of products to the customers and it
keeps close eyes on the customers with their different trends. The growth of the population is
important as a number of customers will be increased. In the UK, the growth of the population is
significant as it is 0.8% in annual change and however, UK population showed the sharpest
growth in the year 2016 after 70 years (Retaileconomics.co.uk 2014). It clears the indication of
different consumers' preferences. The UK is one the richest country in the world and changes
required of the population are significant. Moreover, demographics also refer to the age structure
of the population. Retail industry offers products to all ages; however, the UK has to follow aged
population in the years to come. Most of the population in the UK belong to between 20 and 50
(16.751 million males and 15.563 million females) (Deloitte.com 2017). This will impact on a
supply of workers in the workplace and customers in the organisation. Aging population in the
future can pose a negative impact on the retail industry. Moreover, global migration is an
important factor in recent time and by the end of 2040, the expected migration of geographical
shifting will see the double. This will impact major on both natures of demand and location of
stores of Tesco.
Political forces:
Tesco, however, started in the UK; however, it has now stores in more than six different
countries in the Europe and many countries in the Asia. Tesco's performance is influenced by the
global politics and political atmosphere in respective countries. The UK left the EU and it
influenced heavily on the Tesco as regulations of EU are no longer impact on retail marketing.
The political condition of the UK is not stable for now and Brexit impacted on the retail industry

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in creating opportunity in business and in employment legislation. The Recent political condition
of the UK creates a favourable atmosphere for Tesco as the government of the UK encourages
providing more job opportunities to the people in flexible, locality-based and lower-paid. The
retail sector is prevalently labour-intensive sector as sales assistants are important for Tesco. The
UK government takes risk 22% in tariff on the EU food imports and that can impact positively
on Tesco. The government of the UK has recently increased the tax in the retail sector and tax
burden increased up to 65% for the big retailers (Economicsretail.co.uk 2017). UK Government
cut the corporation tax rate; however, it increased the retail tax. The recent tax structure of the
UK government can impose a negative condition for the Tesco.
Ecological forces:
Before 2003, retailers did not think of the ecological factors, however, there has been
pressure in the UK for the companies to take responsibility and acknowledge the work for
benefits of society. Tesco does work in support of the society and environment. In food retailing
department of Tesco has been facing the issue as an environmental threat as the fresh food
supply is getting difficult. Tesco is doing corporate social responsibility that is mostly concerned
with the regulations of government in environmental factors and corporate governance (Baker
and Saren 2016). The UK government launched the sustainable consumption rules with cutting
the waste that is produced by the retail stores. Climate condition and weather change pose the
negative impact on the business as a government can impose new regulations for the retail
business. The government of the UK has imposed the new tax of fatty foods.
Economic forces:

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The cost of labours in the UK is high and it impacts on the revenue of the supermarket
industry. Tesco's annual wage expense is almost GBP 4.6 billion. The UK government has
introduced the increase in national minimum wage in the UK and it resulted in the increase of
wage bill in 11% (Delitte.com 2017). Monetary policy in the country and fiscal policy have its
impact on Tesco's business. After the incident of Brexit, the UK's inflation rate has seen the
increase in inflation rate and it touched 2.9%. Price of clothing has increased and consumer price
index rose by 2.8% and the high inflation rate is can impose the negative impact on the retail
industry. In the year 2016, the GDP of the UK was 2.61 trillion UDS and it slightly decreased in
the recent time. In the UK economy, high unemployment level affects the decrease in the
demand of the retail market. However, profit of Tesco touched 1.28 billion in the last year and it
was five year record (Hutchinson et al. 2015).
Technological forces:
Technological pose significant impact on making the relationship between retail
organisations and customers. Obviously, the rise of the online medium can impact positively on
business through technological factors. Tesco has launched new technology named Efficient
Consumer Response and it is related to the supply chain of the organisation. Tesco uses wireless
devices in order to connect the sales executives in the stores and also in the products storerooms.
Tesco also uses electronic shelf labelling in the warehouses in making the tag of the products.
Moreover, Tesco introduced self-check-out machines for both customers and employees.
Moreover, Tesco provided maximum stress on the supply chain in tracking the products. Tesco
has to manage the supply of the products from various suppliers and RFID technology is helpful
for Tesco (Magrath and McCormick 2013). Technological change mainly makes a positive
impact on business as jobs become more intellectual, professional managers become more

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technology friendly. Technology provides benefits to reach customers and increase productivity.
On the contrary, technologies negative impacts are spending in technology gets higher and
systems became critical.
Socio-cultural forces:
Organisations have to understand the traditions, customs, preferences and tastes of the
customers in doing the business in the retail sector. However, Tesco takes the strategy of human
relationship that can impact on cultural values and social attitudes. As stated by Sun et al.
(2014), the current trend of British customers is that they have shifted from one-stop shopping to
bulk shopping. This societal change in consumer preferences can impact on majorly supermarket
industry, it can give negative impact on the organisation Tesco. In supermarket industry, it has
been observed that most of the retailers try to acquire their own suppliers and it becomes easy to
handle supply chain (Wood and McCarthy 2014). Consumers’ become more conscious in
healthy eating and their preferences of clothes. Retail organisations have to keep more products
based on the consumers’ preferences. Tesco has taken the strategy of product mix as the British
customers tend to take organic products more.
P5 Conducting both internal and external analysis of Tesco in order to identify strengths
and weaknesses
Tesco Plc is one of the top retailers and t is public ltd company in the UK. In order to
sustain the profitability and maintain the position in the market, Tesco analyses both internal and
external factors of the business. Organisation's strengths and weaknesses both can impact on the
organisation's success (Sun et al. 2014).
Strengths

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Tesco is a retail brand and it has a global presence. Tesco has its presence in more than
12 countries and it is in the top 100 most valued brand in the world. Tesco's strength lies in the
value and it offers value for money products. Tesco offers quality products and people can have
a wide range of products. In worldwide, Tesco has more than 6700 stores, however, Tesco's plan
in US expansion was not successful. However, Tesco's innovation in expanding the business was
noteworthy as it established the stores like Tesco Metro and Tesco Express. These types of stores
are helpful for the local customers as customers can visit the neighbourhood stores for groceries.
Tesco has been considered the most profitable retail chain in the UK and Tesco’s model has been
followed by most of the retail brand in the world.
Tesco has won various awards in retail excellence and in overall shopping excellence. Tesco has
overshadowed the other brands in customer service and it has significant cash reserve with the
strong financial position. Tesco provides employability to the local people, disabled people and
young students, in this way they do their social responsibility. Tesco's strong history in the retail
market gives them customer loyalty benefits and it provides assurance in continuing to operate in
the future (Drucker 2017). Tesco mainly uses the low and competitive pricing strategy that helps
the organisation to reach maximum customers. Online discounts and marketing also help Tesco
to increase market share.
Weaknesses
Tesco has its subsidiaries; however, its subsidiaries are not working well and they are
vulnerable to the external factors. In the recent credit crisis, this organisation has been facing the
issue in finance profit levels. Moreover, in the UK market, competitive pressure is high as there
are three other supermarket giants, Sainsbury, Aldi and Morrisons.

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Tesco has been operating in more than 12 countries and retail format of other countries
apart from the UK have not performed well. Tesco needs to do market research well in order to
improve the condition of marketing in those countries. Tesco has been facing the issues of supply
chain and inventory and it leads to the high cost of inventory management. Moreover, Tesco is
facing the issues in reducing the price and it is necessary for Tesco to reduce the price as
competition is getting high in this field. Store refurbishment, IT technologies and diverting cash
strategy can be helpful for Tesco.
Opportunities
Tesco has an opportunity to expand the market in other countries as well in this respect;
Tesco can make the strategic alliance with other brands in order to meet the consumers'
requirements. Tesco has the opportunity in doing the product mix as more products they can
offer to the customers. This strategy can increase the target market and this strategy will improve
the target consumers where the brand is underperforming (Ebert et al. 2014). Tesco has an
opportunity to grow the brand in an online platform as the online platform gives the benefits to
reach maximum customers. Tesco needs to provide home delivery services and they can increase
private label marketing.
Threats:
Threats of Tesco are related to the economic factors of the industry and it is related to the
issue of recession, credit crunch and profitability issue. In the economic downturn, the most of
the customers decrease the purchases quantity and size of purchases reduces automatically.
Threats are coming from global retailers as well, like Wal-Mart, this threat is significant as

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global leaders have global supply network. Wal-Mart could take over the Asda and it may pose a
significant impact on Tesco in the UK market.
Tesco has been facing the threat as the price of the food products are getting high and
consumers; disposable income is not on rising. The government of the UK has set increased
wage for the labourers and it resulted to increase the wage bill approximately 11%.
P6 Explaining the strengths and weaknesses of the organisation that can interrelate
external macro factors
Management of an organisation compares the strengths and weaknesses of the company
that are prevailing in macro factors as well, like political, economic, social, technological and
legal factors that help to formulate the strategy and operational measures. Tesco reacts quickly
on macro environment factors and makes strategies in order to meet the objectives and aim of the
organisation. Organisational structure of the organisation is an important element in order to
make a strategy of the organisation to face macro environmental factors. Tesco has strength as it
has large market share in the industry and strength of the organisation is the online platform.
These strengths can be used to make economic condition stable. The organisation is vulnerable
to the economic downturn as recession, credit crunch and debt reduction (Carroll and Buchholtz
2014). The brand value of the organisation is helpful to increase the market share and this
strength of the organisation helps to impose on consumers' preferences. Consumers' preferences
are related to the healthy food and quality of the products. In this scenario, the organisation has
reliance upon the UK market. The weaknesses of the organisation are related to the economic
condition in a global market and these weaknesses can impact on an external environment like
exchange rate, liquidity ratio and GDP growth of the country. However, changes in the legal

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policies can impact on the business decisions of the organisation as brand value of the
organisation may get stained if the organisation does not fulfil these (Prajogo 2016). The
technological factors of getting modern technologies can help the organisation to solve the work
issues; however, too much use of technology can hamper the skill of the employees. The
weakness of the organisation is not having skill sales executives, this issue can be solved through
technology utilisation. Upgrading useful technologies is related to the financial resources an
organisation needs to spend on this. The opportunity for the organisation is in expanding the
business in emerging section. Tesco distributed almost 50% of their profit to the shareholders'
dividend. Tesco has made the good relationship between inside and outside of the organisation.
The external and internal factors of the organisation can impact on the macro-
environmental factors and stakeholders of the organisation can take the decision based on these.
Financial resources decisions take the investors and financial policies of the organisation must be
taken in light of the investors' choices (Hamilton and Webster 2015). Without human resources,
Tesco cannot work; Tesco needs to work on improving the employees’ skills. Management of
the organisation can think about supply chain improvement and competitors’ strategies must be
evaluated.
M1 Analysing the structure, scope and size of different organisations to link with product
offerings and business objectives
In public organisations, they have defined the structure as most of the public
organisations; the government has its share. In public sector, it typically follows the vertical
structure. As a few people are in the top of the organisations and scope of the organisations
create job scope and people have their exact roles. Size of the public organisations is big and it is

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an example of bureaucracy in most of the time. The business objective of the public organisation
is to provide public service with making a profit (Wild et al. 2014).
In private sector organisations, they are mainly sole proprietorship or partnership based
organisation. Private organisations follow mainly hierarchical structure and communication flow
becomes upward down. In large organisations, decisions have to be made on the organisational
scope. The size of the organisation depends on the organisation's perspectives and
responsibilities it assigned. The objectives of the private organisations are to make a profit and
increase the market share in the industry.
In the voluntary sector of the organisation, most of the time, they follow metric structure. Scope
and size of the voluntary organisations depend on the name and the time it has been working
(Bryman and Bell 2015). These are non-profit organisations and work for the benefits of the
people. However, the annual income of the organisations is high and they operate in mainly local
level. The offerings of the organisations are mainly helping to the distress people.
M2 Analysing the advantages and disadvantages of interrelationships between
organizational functions and impact upon organizational structure
Hierarchical structure provides benefits when the employees can recognise the different
leaders of the organisations and opportunities of promotion can motivate the employees. In
making the relationship among different departments of the organisation, this structure does not
help much as employees mainly focus on their works and in their specific functions. Employees
become loyal to their department only as the focus of the employees go vertical only. Rivalry
among the various departments can inflame each department as they find the own interest, not
the organisation as a whole.