Business and the Business Environment: Tesco's PESTLE Analysis Report

This report delves into the intricacies of the business environment, exploring diverse organizational structures and their functions. It categorizes organizations into profit-making, non-profit, and non-governmental entities, providing examples and highlighting their operational characteristics. The report further examines the size and scope of organizations, differentiating between micro, small, medium, and large enterprises, along with their market shares and capital requirements. It also analyzes various organizational structures, including functional, divisional, and matrix structures, and their suitability for different business objectives. The second part of the report presents a case study on the UK supermarket sector, specifically conducting a PESTLE analysis of Tesco PLC, considering political, economic, social, technological, legal, and environmental factors impacting the company. The analysis includes the impact of Brexit, economic growth, and technological advancements on Tesco's operations, providing a comprehensive overview of the business and its environment.

Business and the business environment
Name
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Part 1
Different types of organization
Diverse types of organizations are set up by groups of individuals with the ultimate
purpose of serving the surrounding community. Some organizations are locally based while
others are multinational (operating in various countries). The organizations are classified either
as profit, not for profit (NFP) and non-governmental organizations (NGS).
Non- Governmental Organizations (NGOs): The Non- Governmental organization
(NGOs) refers to organizations or associations formed by group of individuals and functions
autonomously from the government in order to perform humanitarian functions and broad
spectrum of services such as provision of health care, education and human rights (Hasmat,
Hildebrandt and Hsu, 2016 p.17). The entity of the Non- Governmental organizations is their
ability of “not making profits” when operating on an international, national or regional level
depending on its connectivity and reach. In addition, For Non- Governmental organizations to
facilitate effective operations, they usually raise its funds from other businesses, governments,
private people and foundations.
The purpose of Non-governmental organizations is to perform various activities such as
caring for the environment, maintain peace in countries experiencing political instability,
provision of aid to countries affected by famine and drought, provisions of sponsorship to needy
children among others. The Non-governmental organizations perform these activities with the
aim of drawing government attention towards citizen’s grievances, promotion of political
participation and advocating for public policies. Furthermore, Non-governmental organizations
are designed to address specific issues. For example, there are NGO’s that are designed to
improve living standards of underprivileged members of society and also address societal issues

like health issues, environmental and supporting children and women rights. The most popular
NGO’s companies in the UK include Al-Khair Foundations (AKF), Justgiving, Seedrs,
Transparent hands and Kickstarter. For example, Transparent Hands Organization provides
surgery funds to the poor patient by use of a global crowdfunding platform.
Non-Profit-Organization (NPOs): The Non-Profit-Organizations (NPO) are “legal
identity” type of organizations formed by diverse groups of people with the ultimate purpose of
promoting professionalism, regions, cultures and social objective (Jiang, Zhang and Yue, 2018
p.1). The Non-Profit-Organization (NPO) organization raises funds from the registered members
or trustee of the NPO. The Non-Profit-Organization (NPO) organizations have an identity of not
making profits and therefore it does not distribute its funds to the members of organizations but it
applies surplus funds on promoting the objectives and goals of an organization. In the UK, NPO
organizations enjoy many privileges such as exemptions of tax and are not required to use
domain names such as “Pvt or “ltd” at the end of their names. Examples of NPO’s services
include public hospitals services such as medication, public educational institutions (Public
universities and colleges) services such as vocational training and education, social and
recreational services such as exhibitions and trade shows and sports clubs (like women clubs).
Profit-Making organizations: The Profit-Making organizations also known as for-profit
corporations are a type of corporations that are formed with the ultimate aim of earning profits
through its concerned own interest and operations (Brewster and Cerdin, 2018 p.1). Furthermore,
profit-making organizations use a variety of strategies such as leadership approaches to increase
employee’s motivation and managerial styles to generate profits. In the UK, various companies
such as Tesco, ASOS.com, Amazon and BBC are good examples of profit-making organizations.
For example, ASOS.com spends fewer funds stocking merchandise than it receives on sales and

therefore is considered a profitable company. The profitable company offers professional
services that are in constant demand and further facilitates the selling of products to generate
profits. For example tax services, accounting services, optometry and chiropractic care are
needed daily and people tend to pay for this service indicating that companies offering the
services generate high revenues.
Size and scope of the organization
Microenterprise: According to Engström and McKelvie (2017 p.856), a microenterprise
is any business that is considered to have a turnover if up to $1 million. Most of the
microenterprises usually use a business broker and Mortgages brokers for raising capital to fund
their operations. Furthermore, the microenterprise usually requests for assistance using the sale
of the business and home loans. In addition, micro enterprises require small capital to start,
minimum employees (usually operated with less than 10 employees) and ranked in terms of
market share. Examples of the microenterprises are ice cream parlor or cafes found on streets of
the UK. Microenterprises in the UK produces both services and products to local towns and their
businesses come to inform of selling food staples from a small store, selling cooked food from
the sidewalks (take away restaurants) and local farm. In terms of market share, the turnover
generation of these small enterprises is between $1 million and $20 million and the majority of
them are private and family businesses. Small business if well managed they have high growth
and sustainability and they grow rapidly to become small enterprises. With most of the
microenterprises formed by sole proprietorship form business, profits are not shared.
Small enterprises- According to Rahayu and Day (2017 p.25), small enterprises
(SME’s) are business that has a low volume of sales and employees a small number of
employees. In a business context, small enterprises are owned independently and limited in size

and revenue depending on the sector they are operating. Most of the small enterprises are owned
and formed by partnership, corporations or privately owned sole proprietorships. In the UK,
small enterprises range from small manufacturing plants to convenient stores. For example, a
manufacturing unit employing less than 50 employees. Other types of small enterprises include
small engineering and architectural firms, dry cleaners, inns, law firms and privately own
restaurants. Generally, small enterprises usually vary in revenues, size and regulatory
authorization. For example, a small business like dare care, retirement homes and orphanages are
heavily regulated while home accounting business may require the only license. In terms of
market share, small enterprises have a small market share of less than 5%. Most of the small
enterprises are formed by the partnership and therefore, their profits are shared equally among
business owners. The business growth and sustainability are high for small enterprises as the
majority of them have grown to be registered under medium enterprises.
Medium enterprises: The medium enterprises consist of businesses which accommodate
50 to 250 employees. The medium businesses have an estimated turnover of $20 million up to
$300 million (Bueso and Tangney, 2017 p.373). They usually depend on regional retail banks
and major retail banks for capital assistance. In most cases, Medium enterprises are operated by
large families and private businesses. In terms of market share, most of the businesses have
medium markets share of less than 10% and their growth and sustainability is very high. With
mediums enterprises formed through partnership and corporations, profits are equally shared to
business owners.
Large enterprises- According to Schill, Lentz and Schill, (2017 p.2) large enterprises are
businesses which their revenues exceed $300 million. Investment Banks are suitable for
providing assistance to large enterprises. Examples of large enterprises include government

institution, large public companies, and large global institutions. The services required by large
enterprises include equity finance, acquisitions, merging and debtor hybrid finance. In terms of
market share, large enterprises have unlimited capital and therefore they control the market share
of the industry. Most of the large companies have a market share of more than 10% and they
have high growth and sustainability.
Organizational structures and functions
According to Neubert, Hunter and Tolentino (2016 p.896), an organizational structure is
a system that outlines how particular activities such as roles, rules and responsibilities, task
allocations, supervision and coordination are directed for an organization to achieve its goals,
targets and objectives. Furthermore, organizational structure determines the hierarchy of
information flow within the company.
Types of Organizational Structures
There are various types of the organizational structure adopted by various organizations.
The most popular types of organizational structure include functional, divisional, matrix and
flatarchy.
Functional and transnational organizational structure: According to Bai, Feng, Yue and
Feng (2017 p.621) functional organizational structure is an organization being divided into small
groups with each group assigned particular roles and tasks. For example, in Tesco Company,
there is a specific group working on information technology (IT) department and the group in
Human resource management (HRM). Each of these departments in Tesco has a manager (head
of the department) who answers the concerns of employees in a particular department.
Furthermore, there are also the operation manager and general manager who also oversee
multiple departments. For example, the finance manager supervises the finance and accounting

team but reports to the general manager who is in charge of other departments like IT divisions,
marketing and finance. The benefit of a functional structure is that employees are grouped by
function, skills and experiences which allow them to effectively focus on executing their roles as
a department. The main challenge of a functional organizational structure is that there is a lack of
inter-departmental communication with a discussion of employees concerns being held at a
managerial level among the individuals. With objectives of Tesco being to provide products that
meet customer needs, the functional products pools diverse process and skills together to produce
high quality of products.
Example of the functional structure adopted by Tesco PLC Company in the UK
(Image source Ahmady, Mehrpour and Nikooravesh, p.455)
Transnational (divisions) organizational structure: A transnational organizational
structure is popularly adopted by companies that operate across several horizontal
objectives. The structure usually allows autonomy among the diverse workgroups
within the organization. General electric company is an example of a company using a
divisional organizational structure. The company has many different divisions such as

digital and renewable energy, aviation, currents and transportation. Furthermore,
under a divisional organizational structure, each division operates like its own
company with control over its employees and expenditures. In addition, transnational
organizational structures have complexities that interfere with coordination at various levels. For
example, it becomes hard to balance between needs of diverse geographical, functional and
product stakeholders. The command structure creates conflicts and ambiguity and the complex
decisions slowed down decision making as various people are involved. For example, with the
objective of Generic electricity being to promote the high quality of products to diverse regions
across the world, the structure ensures that each region has the availability of products and
representation of the company.
Example of transnational (Divisional) organizational structure adopted by General electric
company
(Image source Fairfield, 2016 p.242)

Matrix, international hybrid organizational structure - matrix structure is a blend
of projected organizational structure and functional organizational structure. In a
matrix organizational structure, employees usually report too many bosses depending
on the project or situation. The matrix structure is challenging because reporting to
multiple bosses may add more confusions of roles and responsibilities and create
workforce conflicts. The matrix organizational structure is advantageous because
employees can share their skills, experiences and knowledge across the diverse
functional group which enables effective understanding of functional roles and
enhancement of communication skills. Furthermore, by working across diverse
functions, workforces are able to broaden their knowledge and skills contributing to
personal and professional growth within the company. Amazon and Google are an
example of companies that use Matrix organizational structure. The matrix
international structure relates to the Amazon's objectives and mission by ensuring
there is high creativity, innovation, skills and experiences in diverse regions which
assist in product differentiation.

Example of matrix organizational structure as adopted by Google and Amazon
(Image source Ahmady, Mehrpour and Nikooravesh, p.456)
Part 2: Case study: The UK supermarket sector
PESTLE analysis of Tesco Plc. Supermarket in the UK
Political factors
-possibility of Scotland becoming independent leading to
issues of added administration costs, pension laws and
supply chains which contributes to Tesco’s low profits as
a result of price hikes.
Economic factors
-slow economic growth and inflation outpacing wage
growth making economy recovery unapparent for Tesco
supermarket.
-The decline in GDP as a result of Brexit policies
impacting earnings of Tesco.
The high value of real estate making Tesco trade below

-UK leaving EU (leaving trade zones) leading to Brexit
policies that significantly impacting Tesco’s business by
an increase in prices and tariffs of imported goods.
the value of their property.
-significant growth of unemployment rates hence
impacting on how consumers spend Tesco
supermarkets.
Legal factors
-regulatory approvals delay the business growth and times
the decision making
-competition law such as abusive of dominant position.
-consumer rights bill controlling how Tesco supermarkets
promote some commodities.
Technological factors
-use of data-driven analytics to derive consumer insight
boosts the profits of supermarkets
-growth of e-commerce providing convenient services.
-Increase in technologies such as self-checkouts to avoid
long queues.
Social-cultural factors
-trends of supermarkets offering unhealthy food
demoralizing the purchasing power of consumers hence
leading to losses in Tesco Supermarket
-the demand for organic food is high
-Corporate Social Responsibility (CSR) affecting the
images of Tesco’s supermarkets in the UK.
-Reduction of average shoppers’ incomes hence putting
pressure on households budgets and many consumers
have decided to cut their purchasing budgets in the
supermarket
Environmental factors
-reduction of carbon emissions
-Reduction of operational waste and recycling
-Strategic sustainability plan.
-poor weather affecting crops and fruits and therefore
interfering with supply chain and pricing of Tesco’s
products.
-bad weather affecting how products are delivered to
Tesco warehouses.

SWOT Analysis of Tesco
Strengths
- Strong market shares
-considerable brand equity in its name I term of selection,
services and quality
-diversified stores, market and product range.
-Greater costs efficiencies and enhanced service industries.
-diversity of employees bringing creativity and innovation in
product designs and process in Tesco’s supermarkets
-differentiated products and services (food proposition) with
attractive quality.
-Efficient supply chain network
-expansion of global markets via collaborations
- Consistent profitability.
Weakness
-the low margin of the food business as compared
to competitors.
-fraud trial and Accounting Scandal
-low-cost strategy
-financial errors.
-Tesco is highly depended on the UK and Europe
(single operating market)
-poor operational performance in some subsidiary
Opportunities
-strategic alliance with other medium-based companies
-emerging markets and joint venture opportunities.
-emerging convenience shops and online groceries are
channels of future growth,
-expansion of global markets via online collaborations
-technology analytics assisting with customer insights
- Diversification.
Threats
-trends of economic recessions and credit crunches
-government regulation and political landscape
-the current trends of Brexit on prices
-Christmas controversy
-labour threats (increased wages prices)
-High competition intense that exist in the retail
industry
-competitive pressures leading to price wars

Porter’s five forces
Porter’s five forces framework is a recognized tool that analysis business competition
environment from industrial economies for determination of competitive intensity and how the
industry is attractive in terms of profitability. Porter’s five forces include five competitive forces
such as bargaining power of suppliers, the threat of new entrant, bargaining power of buyers,
rivalry among the competitors and threats of substitutes. Tesco Plc must manage all these
competitive forces and build effective barriers for safeguarding its competitive edge.
Bargaining power of suppliers: - In the UK grocery industry, the power of suppliers
toward regulation of the industry is very high. Companies buy raw materials from numerous
suppliers in the industry. For example, suppliers are important players for small retail shops and
they are determinant of prices. However large supermarkets such as Tesco and Wal-Mart are
popularly known to have control over suppliers and further dictate prices for them. Tesco Plc
gains a competitive advantage of the suppliers because most powerful suppliers in consumer
services use its negotiation power to dictate prices for other firms operating under the same
industry. Generally, the impact of high bargaining power of supplier is that it lowers the
profitability of the entire retail industry. Tesco Plc tackles the competition force of “bargaining
power of suppliers by developing determined suppliers whose business depends upon Tesco PLc
and building an effective supply chain with multiple suppliers.
A threat of new entrant in the UK’s retail industry is very medium. With the advanced
technology, new entrants might bomb the market with differentiated products that can
significantly attract the attention of loyal customers of the existing large firms. Tesco PLc
survives the competition force of “entrant of new entrants” by innovating new services, products
and process that give existing customers a reason to buy its products and bring new customers.

The company also builds economies of scale in order to lower its fixed cost per unit. Tesco plc
also spends significant amounts and builds capacity on research and development.
Bargaining power of buyers is fairly high in the UK’s retail industry. However, in a
situation where the products are highly differentiated and standardized, the switching costs are
very high because buyers are able to switch from one brand to another. With customers
demanding a lot and developing a tendency of buying products on offers and paying minimum
prices, Tesco plc.’s has decided to lower prices in order to increase its profitability. Furthermore,
the more powerful the customer base of Tesco, the high the bargaining power of customers, the
high the ability of the company to offer discounts and bonuses.
Threats of substitutes are medium. The substitutes of Tesco and other major retailers are
small chains of convenience stores and organic shops which are not of a significant threat to key
players that offers high quality of products at relatively low prices. However, the threat of non-
food items is high because, with the economic recession, customers incline towards discount
prices. Therefore, Tesco is threatened by specialty shops. Tesco tackles the force of “threat of
new substitute” by being service -oriented, understanding the core needs of customers and
increasing switching costs of customers.
Rivalry among the existing firms is extremely high with Tesco Company facing intense
competition from Waitrose and Sainsbury's chain of supermarkets which are competing with
each other over promotional intermittently, products and prices. With slow economic growth
experienced in the UK, the market shares of competitors which are increasing every day have
intensified a market rivalry which has been a threat to Tesco Plc.’s leadership position.
Furthermore, With the rivalry being intense, Tesco has decided to cut the prices of the products
as a strategy of curbing competitive environment.

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