Assignment

On
Evaluation on Changing Business Environment of Tesco

Course Code:

Course Title: The Business Environment

Programme: PGDBA Term

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Executive summary:

This report is focused at explaining various changing environment and its influence in the
business organisation. This report is based on the changing business environment of
company Tesco, a giant and leading supermarket in UK. The report is merely aimed at
explaining of external environment using various analytical tools such as Swot analysis,
PESTLE and Porters five forces. The report is based on explaining and comparing each
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analytical tool by using theories and examples. It has aimed to evaluate strength,
weakness, opportunities and threats by using SWOT analysis, through PESTLE analysis
Political, Economic, Social, Technological and Environment factors and through Porters
five forces it has focused on the several factors as such as threats from new entrants,
buyers, suppliers, rivalries and substitutes products.

TABLE OF CONTENTS

Contents Page Numbers

1. Introduction........................................................................... 4

2. Company Overview............................................................... 5

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3. SWOT Analysis......................................................................6

4. PESTLE Analysis....................................................................8

5. Porters Five forces.................................................................10

6. Recommendations..................................................................12

7. Conclusions............................................................................13

8. References..............................................................................14

Figures

9. Fig. 1 SWOT Analysis..............................................................6

INTRODUCTION:

Meaning of Business environment and its importance:

Environment simply means any surroundings, forces or those factors that directly or
indirectly affect or influence the modification, growth, development of anything.
Environment exists everywhere. Similarly, business organization is also affected by
environment. According to business researchers two types of environment exits in any
business organization, micro environment and microenvironment. Micro environment are

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generally controllable and are also known as internal environment whereas macro
environment are external environment or forces and are generally not controllable but can
analyse the changing environment and act accordingly. So for any organization
understanding of macro environment is very crucial for the growth and development of
the organisation. Some of the examples of macro environment might be political factor;
social, economical factor etc of the country where business is linked with or has
connection. So what we can say is macro environment comprises of all those external
factors or forces that directly or indirectly influence the business decisions, these factors
are outside of the control of the business and organization and organization can do only
little to change them. Some of the features of business environment are totality of external
forces, dynamic in nature, unpredictable etc. So for every organisation understanding of
business environment is essential because it helps the organisation to understand or
identify the possible threats, opportunities, change and performance of the business.
This report has been aimed at understanding changing business environment of an
organization. In order to achieve the aim of this report the Tesco Pvt. Ltd Company, the
largest British retailer by both global sales and domestic market share is chosen.
The main objective of this report is to analyse describe and evaluate the changing business
environment of the Company over the last five years. I am going to analyse its changing
business environment by using following analytical tools.
 SWOT analysis
 PESTEL analysis
 Porter Five Forces analysis

Company overview:

In the year 1919, Jack Cohin started a small business and made a profit of £ 1 from a sell
of £4 on the very first day. It is how the history of the “TESCO” begins. Excited with the
first profit Mr. Cohin continued with the small business for five years until 1924 when a
new brand appeared in the market as Tesco. The Tesco got its name from the combination
initials and letters the names of Mr. T.E. Stockwell and Mr. Cohin. Mr. T.E. Stockwell
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was the businessman who first delivered the shipment of tea to Jack Cohin. In 1932, it
became the limited company and after 15 years in 1947 it was listed in the stock market
and the beginning market price was 25 pence. Then after Tesco expanded so quickly and
effectively that today it operates in 14 counties outside UK, which includes USA, China,
Japan and Turkey.

SWOT Analysis:
Swot analysis is the strategic planning method created by Albert Humphrey to evaluate
the company’s strength, weakness, opportunities, threats.
STRENGTHS WEAKNESS
 Brand  Too much diversity
 Customer base  Large capital expenditure
 Economics of Scale  Negative media
 Store variety
 Increasing market share
OPPORTUNITIES THREATS
 Strategic alliance  Weakening economy
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  New markets  International expansion
 Non food retails  Loss in overseas sells
 More international growth  Rival challenge
Fig.1 SWOT Analysis

Strengths:
Tesco’s strength includes increasing market share, its brand value, customer base. Its
market share is increasing every year. Its brand has a greater value with strong image and
good quality. Tesco is considered as the UK’s leading supermarket ranging its sales from
retails, petroleum to insurance business. Over the years Tesco is able to maintain its
loyalty to its customers as a result the brand Tesco is easily recognizable and reliable to
the customers. Similarly since Tesco operates more than 2000 stores in UK only it has the
benefit to buy the products or raw materials in huge quantity or economics of scale and
doing this they can deliver the products in cheaper prices as compared to their rival
companies. Also customers are always benefited from the variety of quality goods and
services offered from the single place as Tesco has able to do.

Weakness:
Although Tesco’s offering variety of goods and services is a good strength but it has also
weakness as well. Offering a variety of goods and services might lose the specialisation
and it may find hard to compete with the specialised competitor in particular products and
ultimately hamper its brand image. Tesco is investing its large amount of capital in
opening its new stores in huge pace. Every time all the stores might not have the same
amount of sales as projected as a result cash flow will be minimum and there will be very
little capital or cash for another projects. Similarly as the reports shows that until now its
major target market is UK though it has shown some growth in international market but
this is also one of weaknesses of Tesco as recession period of UK is bouncing back to its
normal very slowly as compared to other countries and this will certainly affect its growth
in the long run.

Opportunities:
There are various opportunities for Tesco some of these opportunities can be highlighted
as it can take over or form strategic alliance with the small different companies in the
areas where it is not doing well and better serve and reach the customer. It has the
opportunity to research upon new markets such as it can look upon mortgage, open banks,
airlines industry etc. It has the opportunity to develop small store type market rather then
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large markets such as Tesco metro and expand itself in the villages as well. Since it holds
the large amount of capital it has the opportunity to achieve more international growth. It
can target rapidly developing countries such as India and China and add more stores,
similarly in America and Europe as well.

Threats:
Weakening economy and increasing number of unemployment might be the one of the
threats to Tesco and during this period people have very little to spend and world is still in
the shadow of recession. Expanding a business in international market is always risky and
expensive. Entering to new country with new brand requires a huge amount of capital
investment requirement in marketing, fixed assets etc. There is always high chance of
overseas sell loss because of competitors, economic conditions of the particular country
etc. Looking upon UK market it has the threats from its rivals such as Asda and
Sainsbury.

PESTEL Analysis:

Political Factors:
Political factor of any refers to the political situation of that country. For instance these
factors may be constitution of that country, stability of the political system, relationship of
that country with the home country, government’s views on culture, religion and
economy, political parties and their ideologies etc. Political factors highly influence the
environment of the business and these factors should be closely taken into account before

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operating any business as these factors are the external factors and one can do nothing to
change these factors. Looking upon Tesco’s business environment Tesco today operates
in 13 different countries in abroad which includes 6 countries in Europe other than UK ,
USA, and other includes China, Japan, South Korea, Malaysia and Thailand in Asia. Its
operation in Croatia is under construction where as it has planned to expand its business
on India, Russia, Italy and Portugal in near future. It withdrew from France and Taiwan.
Tesco aims to generate more revenue from overseas in future. So, analysis of political
factor is greatly important for Tesco and it has been successful in doing so.

Economic Factors:
In business world economic factors are very crucial for every organisation. Economic
factors involves interest rate, inflation rate, economic policies of the government, gross
domestic product, consumer buying and spending habits, growth rate etc. It is very
essential for every business organisation have a core concept of the economic factors. For
organisation like Tesco economic factors are key concern as these factors directly affects
demand, supply, profits and costs. The world is still under the phase of recession and
Tesco also suffered from the recession as its sales growth rate were slowed down.

Socio Cultural Factors:

Socio Cultural factors includes demographics, income distribution, population
distribution, lifestyle, education, social mobility, consumption habits etc. consideration of
Socio Cultural factors are necessary for the marketing, growth and development of any
organisation. Looking upon Tesco, what can be seen is Tesco is able to cope with Socio
Cultural factors by introducing variety of products such as food and non food items in a
single store, introducing organic food items in order to address the customers changing
health awareness, participating and conducting various charity oriented program etc.

Technological Factors:
Technological factors relates to the introduction and installation of latest scientific
technologies to the business. It’s about changing with the time. Use of new technologies
not only benefit to the organisation but also to the customers. Technologies help to
produce quality products saving time and money. Introduction of self checkout machines,
wireless devices, electronic self labelling, online services etc. are some of the examples of
Tesco’s to cope up with changing technology.
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Environmental Factors:
Environmental factors relates to the weather and climate change. Global warming issues
and environmental friendly awareness has forced the entire organisation to consider
environmental factors. In simple environmental factors for any manufacturing industry is
volume of pollution created by the product or service, recycling opportunities,
environmental friendly products and many more. Looking upon Tesco’s consideration
over environmental factors according to Environ news and Business, Tesco is able to cut
carbon emissions per square foot of net sales area from 2006 to 2007 by 47%, it has
established sustainable funds of £1000 million which includes the installation of wind
turbines, low carbon energy etc. Tesco is said to be the first supermarket to install
automated recycle units. Furthermore it has undertaken research into bio fuel, using
responsibly managed fisheries, purchasing timber products from legal sources. It has also
opted the policy of rewarding the customers for using less plastic bags.

Legal Factors:
Legal factors involve the various laws and legislation enforced by the government of the
country. So it is important for the entire business organisation to possess sufficient
knowledge of laws for the better performance of the business. Some of the legal factors
may be discrimination law, consumer law, anticompetitive law, employment law, health
and safety law etc. These laws are set by the government in order to control the
monopoly, provide healthy competition and price stability. Legal factors govern the right
of consumer as well as of business organisation. Considering upon Tesco, it seems it has
been able to abide by the legal rules and regulation in the countries it is operated.

Porter Five Forces:

Michael Porter (Harvard, Competitive Strategy 1980) developed Five Forces analysing
tool in order identify opportunities and risks for business organisation to enter into a new
market. This analysis provides clear analysis and action then SWOT analysis. Five Forces
explains the relationship between the five dynamic forces that influence business
organisation’s overall performance. These Five Forces are as follows;
1. Intensity of Competitive Rivalry
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2. Threat from New Entrants
3. Threat from Substitutes
4. Bargaining power of Buyers
5. Bargaining power of Suppliers

Intensity of Competitive Rivalry:

According to Porter Competitive rivalry between any industries is likely to occur when
large numbers of firms compete for same customers and resources, when there is similar
share in the market, slow market growth, high fixed cost, high warehouse cost, low
switching cost, low level of brand identification etc. For Tesco competitive rivalry in UK
in food and retail industry are Sainsbury, Asda, Morrison and Waitrose. These
supermarkets always compete with each other for better product, price, promotion and
distribution. Similarly Tesco’s rivalry for petroleum products is Shell, Esso, BP and
Texaco.

Threat from New Entrants:

According to Porter, major threat any industry faces is from the new entrants. Threat from
new entrants arises when market is in high profit. This high profit attracts new firms and
if new entrants enter into the market then profit will reach at its competitive level. So
every industry established in the market tries to act as a barrier for new entrants. In order
to obstruct new entrants, firms adopt various types of entry barriers such as producing
products in economic scale, differentiating products and retaining loyalty, investing huge
amount of capital, offering lower switching cost, making assess to distribution channel
more complicated and expensive. Looking upon Tesco in UK market it has very less
threat from new markets; it has also taken various steps to overcome the threat from
small scale groceries opening any time by adopting the policy of opening small scale
Tesco Metro groceries. Besides being the giant of UK supermarket it has the advantages
of economic of scale, it has assessed upon huge distribution channel and its capital
investment is very huge.

Threat from Substitutes:

According to Porter, substitutes means the product that is available from another industry
that possess and provides similar amount of satisfaction and benefits to the customer as
compared to the products manufactured within the industry. For e.g. plastic cans

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substituting aluminium cans. The more the threat of substitute the less is the profitability
of industries and vice versa. The threat of substitute is said to high when customer cost of
switching is low; quality of substituted product is equal or superior in quality and cheaper
as compared to firm’s price. For Tesco threat of substitution might be the opening of
small chains of convenience stores. To overcome this threat Tesco has adopted the policy
of opening Metro and Express stores, similarly Tesco in itself provides variety of quality
of products both ranging in price and quality.

Bargaining Power of Buyers:

Bargaining power is the strength of customer to influence upon industry. It is ability of
customer to influence the price and forces the price down reducing the profitability.
Buyers are powerful when they have the option to buy products from various suppliers,
when they are concentrated, lower switching cost and volume of buyer also makes the
buyer powerful. So understanding of power of buyer is essential for every industry in
order to achieve the profitability. Considering Tesco the introduction of loyalty cards has
been successful in retaining customers and increasing profitability. Beside Tesco has been
able to retain its customers by providing better customer services, timely promoting
products and keeping the price low etc.

Bargaining Power of Suppliers:

Any producing industry requires supplies. These supplies might be in the form of raw
materials, labour, components and other supplies such as expertise service. Suppliers tend
to be in power when there are few substitutes in the market, when there is no option of
switching from one product to other or costly switching option. When suppliers are in
power they refuse to work with the industries and bargain for high prices, provide low
quality materials etc. Taking account into Tesco, it is in the monopoly position over its
suppliers. Until now it has strong control over its suppliers.

Recommendations:

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Tesco should not depend only on the UK market share but also has to expand its business
in both western, Asia and European market. It should now look upon retaining upon
customer by providing quality products and services at low price as compared to other
supermarket. It should also focus certain product specialization rather than just
diversification. Similarly it should research upon various environmental issues and
address them such as issues on pollution, global warming, environmental friendly
products etc.

Conclusions:
This report is mainly focused on describing and evaluating changing business
environment of the company Tesco using various analytical tools. Business environment

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refers to the internal and external factors that influence the growth and development of
business organisation. So it is essential for every organisation to understand, address,
react and study these factors in order to achieve organisational objectives. The success of
any organisation depends upon how well it is able to analyze these factors basically
external factors as these factors are beyond the control of the organisation. The
importance of understanding of business environment for any organisation can be
evaluated from the case study of Tesco which is now a UK’s largest supermarket by sales,
revenue and profit first started its business as a small retail grocery offering only food and
drink. But today it has diversified its business into areas like clothing, electronics, health,
insurance, financial sectors, petroleum products, online services and many more. If Tesco
had not studied and reacted towards the changing business environment then one can
imagine it would have remained as only small retail grocery. But today Tesco is in strong
position; it has more strength and opportunities then weaknesses and threats. It has strong
hold upon its customers and suppliers and threat from new entrants and substitutes are
also minimal till date but threat from competitive from rivalry such as ASDA, Sainsbury
cannot be neglected. Overall what can be said is Tesco has been able to cope and act
towards the changing business environmental factors until now.

References:

Palmer, A and Hartley, B 2002, the Business Environment, McGraw-Hill Educational,

ISBN 0-07-709747-5.
http://www.tesco.com [5 April 2010]
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www.quickmba.com/strategy/porter.shtml [5 April 2010]
https://wikipedia/wiki/porter five forces analysis [15 April 2010]
http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/5525373/Tesco-
sales-to-show-improvement.html [15 April 2010]
http://www.tescopoly.org/index.php?
option=com_content&task=view&id=595&Itemid=156Supermarket news [10 April 2010]
https://www.telegraph.co.uk/finance/2948316/Is-Tesco-facing-trouble-abroad.html
[13 April 2010]
http://www.ivoryresearch.com/sample30.phphttp://www.ivoryresearch.com/sample30.php
[6 April 2010]
www.tesco.com/climatechange/speech.asp [20 April 2010]
http://www.guardian.co.uk/money/2006/aug/04/supermarkets.ethicalmoney [18 April
2010]
www.enviro-news.com/policies/tesco.html [16 April 2010]

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