The analysis of the business environments of the business organizations is considered as one of the major tools for the development of business strategies (Wheelen and Hunger 2017). It is needed for the business organizations to analyze and evaluate the effects of various environments factors on their business operations, as it is required to consider those factors at the time of business strategy development. Two types of environmental factors are there; they are internal environmental factors and external environmental factors. Both these environmental factors have major impacts on the business operations of the organizations. The main aim of this report is to conduct an external environmental analysis on one of the major grocery companies of United Kingdom, Tesco (Tesco.com 2017). In order to do the external environmental analysis, the impact of PESTEL and Porter’s Five Forces need to be analyzed in respect to Tesco. In order to achieve the aim and objective of the business organizations, the organizations are required to effectively deal with the various factors of PESTEL and Porter’s Five Forces. All these aspects have major influence on the performance of the companies. Tesco has been chosen for the analysis of PESTEL and Porter’s Five Forces in order to run their business effectively and efficiently (Vogel and Güttel 2013).
Tesco is considered as one of the largest food retailers all over the world as the company has registered a profit of £1.28 billion in the year of 2017 (Tesco.com 2017). The company was established in the year of 1919 in United Kingdom and the company had their first store in Edgware, London. Tesco has an employee base of 460,000. The company has more than 6,809 stores in 13 nations all over the world. The major business regions of Tesco are USA, Europe and Asia and the company is headquartered in Hertfordshire, United Kingdom. Tesco has more than 7000 types of products selling in their different kinds of stores. The various types of products of Tesco includes food products and non food products. The company also has their online website named tesco.com through which the company uses to sell their various types of products. Apart from this, Tesco Personal Finance, commonly known as TPF uses to provide various financial services and broadband connections to their customers. By delivering the good quality of products and services, Tesco has been able to earn the loyalty of their customers. In addition, it also helps the company to gain the necessary competitive advantage over their competitors (Vargo, Wieland and Akaka 2015).
PESTEL analysis is considered as one of the major tools to analyze and monitor the impact of macro-economic environment on the business operations of the business organizations (Tesco.com 2017). This is considered as an effective mechanism for the development of strategies for the companies. The main objective of this report is to analyze the impact of macroeconomic factors on the business operations of Tesco. The PESTEL analysis is discussed below:
The political condition and legislative regulations of the countries have a significant influence on the various business operations of Tesco (Tesco.com 2017). As Tesco has its business operations almost all over the world, the global political factors also have large influence on the business operations of the company (Trigeorgis and Reuer 2017). Various legislations include various tax rates, various acts of legislation, the political stability of the countries and many others. Due to the effect of global financial crisis, the company has to face many challenges at the time of carrying on their business operations. Apart from this, some specific political steps of the government of United Kingdom has affected the business operations of the company (Tesco.com 2017). In the year of 2011, the adopted tax policy of United Kingdom government affected the business operations of Tesco. In the year 2011, the United Kingdom government increased the rate of VAT to 20% from 17.5%; the aim of this hike in VAT rate was to increase the revenue of the government. Due to the increase in the VAT rate, there was a decrease in the customers spending; it affected the revenue of the company. However, it has been seen that Tesco has been able to overcome all these political difficulties with the help of their market regulation. Tesco plays an integral part in the creation of jobs in the courtiers (Stead and Stead 2013).
Apart from all these, various employment laws and regulations have major impacts on the business operations of Tesco (Tesco.com 2017). One of the major political factors of the company is that Tesco employs people from different age groups to provide them the opportunity for earning; like students, elderly people, physically disable people and others. This helps to create a good image of the company to the people of the community. One of the major objectives of the company regarding employment is that Tesco always recruit from the local areas so that there are more job opportunities in the local areas. In the recent years, the government of United Kingdom is considering the adoption of new tax policies to bring obesity in the business environment and to resolve the medical and health related issues in the workplace. It is expected that the implementation of this particular tax policy is going to have an adverse impact on the business operations of the company (Tesco.com 2017). The implementation of more tax policies has negative impact on Tesco. However, it can be seen that Tesco has responded all these threats with the help effective business strategies. Thus, it can be said that Tesco has to face many difficulties from the political situations (Slack 2015).
Various economic factors have some major influence on the business operations of the Tesco. This economic constrains mainly come from the economic market of United Kingdom. All these economic factors have significant impacts on the various business aspects of Tesco like costs of the products, demand and supply of the products, determination of prices of the products, determination of the profit level and many others (Tesco.com 2017). Thus, it is the responsibility of the management of Tesco to consider every change in the economic regulations and policies like taxation policies, finance regulations and many others. Despite being the fact that Tesco has expanded their business operations worldwide, the company is still largely dependent on the revenue from the market of United Kingdom, Thus, the various financial rules and regulations of the United Kingdom market have great influence on the business operation of the country (Tesco.com 2017). Tesco has a market share of 30% in the market of United Kingdom. This is the reason, the company has adopted the strategies of internationalization and diversification and these two strategies have been the key factors behind the success of the company. There was a decline in the disposal income and household income of the people of United Kingdom. For this reason, Tesco has adopted the strategies to shift their focus on various effective advertisements in order to promote their brand (Simon, Fischbach and Schoder 2014).
Another major factor is the world financial crisis as it has its negative impact on the United Kingdom economy along with Tesco. However, the positive sign is that the United Kingdom is slowly recovering from this financial crisis. The growth in economy is a positive sign for the business of Tesco, as it will help to grow the supermarket industry in which Tesco operates (Tesco.com 2017). Some of the major economic factors that have great influence on the business operations of Tesco are rate of interest, inflation rate, level of unemployment and many others. Business organizations do not have any control over these economic issues, but they can develop effective strategies to counter them. It can be seen that Tesco has been developing effective financial strategies in order to overcome these issues. Apart from this, the global financial crisis also had its impact on the economic aspect of Tesco as the revenue and profit margin of the company were badly affected with the economic hit. Hence, from the above analysis, it can be said that the economic factors have great influence on the business operations of Tesco (Rothaermel 2015).
Tesco is considered as a accompany that is always ready to implement technological advancements in their business operations. It can be seen that Tesco has been using various advance technologies in order to fulfill the customer satisfaction (Tesco.com 2017). Technology has major contribution behind the development of various products of the company. It is beneficial for both the company and the customers. With the help advance technology, the customers get personalized and convenient shopping experience and Tesco gets the chance to increase their earnings. The Tesco stores utilizes various technological developments; they are electronic shelf labeling, electronic point of sale (POS), radio frequency identification, electronic fund transfer system, self check out machines, wireless devises, intelligent scale and many others. The implementation of all these technological development has a significant contribution in the success of the business organizations. For this reason, the customers can readily available products in the most convenient manner. In addition, technological advancement has major part to play in the development of supply chain of the company. With the help of effective supply chain, Tesco has been able to enhance the cost efficiency along with attaining the competitive advantage (Rees and Smith 2017).
The execution of Tesco’s and its performance is exceptionally affected by regulatory and political conditions of countries. Tesco that people grasps it, vacation factors enormously influence retailing business, and this is being inherently from work genuine section and neighborhood (Tesco.com 2017).
Reputation of Tesco is incredible and form political point of view, organization needs to b strict. UK is currently going through baby boom generation due to increase in number of elderly people (Tesco.com 2017). There have been increases in life expectancy of people and decline in birth rate. Therefore, Tesco should take into account shift in tastes of individuals. Elderly people face mobility issues and organization has considered this by adopting online shopping for grocery products. Various social change such as people with higher income tend to use internet more frequently and on large basis and it helps them in acquiring products using online platform. Considering these social aspects, it can be said that Tesco has responded positively to social change (Polonsky 2014).
Tesco was accused of horsemeat scandal as burgers sold by then were identified with horse related puns. Organization was accused of serving bad quality products in their advertising campaign. Perception of customers about products offered by Tesco was negatively impacted and this results in falling sales. The image of organization is adversely impacted by happening of such scandal and organization should be prepared to handle such scandal by responding quickly and strategically (Peppard and Ward 2016).
Social trend in UK has been changing and customers have been moving towards one stop and bulk shopping. Therefore, number on non-food offered by company has increased. Attitude and behaviors of customers influences the customer decisions about buying different services and products. Social conditioning of customers influences all these. Approach of organization towards food is constantly changing as customers are becoming increasingly aware of health issues and are becoming health consciousness (Tesco.com 2017). Tesco is adapting such social changes by accommodating organic products demands. Retailers in UK are focusing on producing and selling value added products and services due to change in demographic factors such as increase in female workers, decline in preparation of home meal and aging population. Tesco is focusing more on driving the costs out of business by considering factors such as supply chain, own label share of business mix and improvements in operations. Tesco was the first company that allowed the customers to pay in cheques and cash at the payout (Nerur, Rasheed and Pandey 2016).
The performance of Tesco is directly impacted by legislations and performance of government. A code of practice was suggested in 2004 by Food Retailing commission that is introduced by many current practices and this involves demanding payment from suppliers and change in price without notice. Price reduction is provided to customers in fuel according to amount they spend on groceries (Morschett, Schramm-Klein and Zentes 2015).
Number of laws affects Tesco because a wide number of products and service are offered by organization. UK government is reforming the common agricultural policy and the ways subsidies are allocated to farmers are being revised. Government of UK has recently implemented financial services act. There were various financial services in which organization is engaged and this should be in accordance with the legal standards set by government (Tesco.com 2017).
Organization has a threat of strong requirement of creating product differentiation and intense war in terms of price due to presence of powerful competitors having established brands. Organizations have limited access to usage of raw materials and requirement of license resulting from buyer power reduction and policies of government for controlling the monopoly power. Tesco has incorporated the implementation of pricing policies that are politically correct by reducing the prices for fuel purchase (Morden 2016).
In terms of legal factors, Tesco was coined by providing businesses and retailers with permission to make legal services available to customers. This was intended to make supermarket in shoppers stop for purchasing groceries. Nonetheless, Tesco was not successful in providing legal services to their customers. Some of the laws incorporated by Tesco in carrying out their business activities and the law in itself are not applicable. Development of organization would be accordingly handled by land acquired by owner (Mahmood, Zubair and Salam 2015).
Respite in UK market would significantly affect Tesco and are displayed to market center risks. Vast segment of products of Tesco are affected by development that is regarded as crucial full-scale characteristic variable. In order to suit the prevailing market conditions, Tesco has developed new wine app, which helps in facilitating customers to buy wine direct using their phones. Productivity of organization has improved by appointment of digital technology such as electronic fund transfer system and electronic point of sale. Corporate strategies adopted by organization should be responsive to environment in which business operates (Jenkins, Ambrosini and Collier 2016).
Company has been faced with increased pressure for acknowledging their responsibility towards the society in year 2003. It should act in such a way that their activities would be beneficial to the societies. Environmental issues have been the major societal issues threatening the existence of food retailers business (Tesco.com 2017). The key area of organization is to act in a socially responsible ways as it will help in sustaining their developmental activities. Tesco is able to concern about their being corporate socially responsible by recognizing the environmental trend within broad ethical stance. Organization performs its duties of being corporate socially responsible by exceeding the minimum stakeholders obligations that is specified through corporate governance and regulations. In year 2003, government has introduced and launched a new strategy for creating sustainable development by creating sustainable production and consumption intended to reduce waste, minimize the change in environment and reducing the consumption of resources. A new tax was inacted by this particular legislation that imposed tax on advertising of fatty and highly processed foods. A range of products of Tesco was directly affected by this tax and this has affected the relationship with both suppliers and customers (Hubbard, Rice and Galvin 2014).
The environment in which business operates is substantially affected by global warming and its various consequences. Environmental factors have considerable influence on environmental sustainability. Tesco adopts a number of measures for protecting the environment. This can be explained with help of an example; organization is committed to make utilization of greenhouse gases and adopting measures for diminishing energy consumptions. Tesco considers environmental factors when they are doing or making adjustments in their stores. Company is under increased pressure for addressing environmental issues and operations should be adopted in such a way that is beneficial to society. Organization is committed to reduce the footprint of carbon by year 2020 by 50%. They intend to increase the social conscience in customers by minimizing the waste that is produced in stores (Hill, Jones and Schilling 2014).
Tesco has attempted to reinforce positive environmental behaviors in collaboration with Global action plan and by generating employment to young people. The carbon footprint of company was reduced by involvement if these individuals who became ambassadors of energy for Tesco company. Tesco has also contributed to development of manufacturing supply that will assist organization in recycling of excessive waste generated through agriculture. Tesco was asked to replace the use of shopping bags to something environmentally friendly. Organization is largest recycler of cardboard in UK. Recycling of cardboard is done in UK using the closed loop system and this helps in finding ways back to stores in dealing with packaging of products (Hill and Jones 2013).
The main objective of Tesco is to reduce the amount of waste in carrying out operational activities and distribution packaging is one of the sources of waste reduction. Reusable transit trays employed by company helps in saving package for product displacement and transportation (Tesco.com 2017). Organization continues to trail technology and improve the processes for meeting the long-term target. One of the ways to handle wastage of resources and reduce carbon footprint is by looking at innovative solutions. Diversion of foods is continually investigated by organization whether such waste is diverted into producing energy. Tesco look for identifying opportunities for reducing the waste and they work in collaboration with suppliers to use on way packaging that helps in making recycled items readily available (Goetsch and Davis 2014).
The competitive structure of retail industry or any industry is sources by one of the forces as provided by Porters. Definition of threat of new entrants helps in revolutionizing the way people viewed at the competition in industry (Tesco.com 2017). Tesco has top ranking in retail business and they do not face the threat of getting any new potential company entered in the business as their foundations are well established. Entrance of Tesco in any country is intended to reduce the power of big business and foreign supermarket. Penetrations of Tesco in some foreign markets are not faced with new entrant threat as they economies of scale are fully exploited by them. This helps in broadening the cost of production concerning the number of units that have been produced by organization. If the threat of new entrant is high for Tesco and this would make the competitive position of organization more strong and thereby decreasing the potential of earning profits for existing competitors. If on other hand, Tesco faces lower threat to new entrant, this would increase profits of other competitive forms in retail industry and make Tesco less competitive (Tesco.com 2017). The threat of new entrants for threatening the competitive position of Tesco is relatively lower as compared to its competitors in the retail industry. This is primarily due to two factors, this involves additional price or costs that is incurred and required for developing the recognition of the brand name, and another factor is high cost that is requited in establishing of Retail Company within the retail industry. A new entrant is required to earn higher profit margin for sustaining in the industry and they needs to make massive investment in capital (Gamble and Thompson Jr 2014).
Tesco handles the move concerning threat of new entrants as organization move with latest technologies, coming up with innovative ideas, making huge capital investment for maintaining brand recognition. It has networked supply chain management that is not possessed by any retailer in industry (Frynas and Mellahi 2015).
Potential competitors are other business companies that have not yet entered in the industry but they possess the ability of entering and competing with existing firms. An industry earning good amount of profits and doing well in the business are likely to attract the business having some potential capabilities (Tesco.com 2017). If the business finds it easy to enter the industry, this would results in creating of intense competition among the existing firms. There are many factors that lead to barriers for entering of new firms in the industry and this includes access to channel of distribution, cost of switching, economies of scale and requirement of capital. The threat of new entrant would be low if the barrier to entry is high and threat would be high if there is lower barrier to entry by newer firms (Ferlie et al. 2016).
Tesco has lower threat of potential competitors and huge capital investment is required for entering in the food grocery retail market. Such huge investment helps organizations in competing with leading competitors in the retail industry in United Kingdom. For overcoming the competitive situation, new entrants seeking to enter the market must have proper strategy and this will help in dealing with situation of organization offering products with lower price and products of high quality (Eden and Ackermann 2013).
The food retail industry has less danger of segment of new competitors. In order to set up new brand name and be competitive, organizations requires immense capital interest. Some of the major brands that have captured the retail industry in UK are Asda, Tesco, Morrissons and Sainsbury and all of them account for 80% of all retail shopping in UK. Therefore, in order for new entrants to be competitive, they need to produce products at exceptionally lower price and of higher quality for establishing market value.
For establishing new supermarkets, it is required to gain plan authorization from government, this requires substantial amount of time and resources, and therefore this can be considered as one of the barrier to new entrant in the retail market (Dévényi 2016).
Tesco Multinational Corporation had hundreds of suppliers as well as there is a minimum or no supplier switching cost for the retail supermarket chain (Wagner and Eggert 2016). Tesco Multinational Corporation has the history of using its barraging power for delaying the payment system to suppliers for improving its operational profit margins under the past leadership in the year 2014. Other incidents of poor supplier treatment that is attached to an extensive media coverage that damages the brand image where the supplier relationship practices have been subjected to an extensive review by the new leadership by the year 2015. Suppliers are mostly inclined towards genuine food as well as basic supplier retailers that dread for losing their business contracts with enormous supermarkets. It is thereby noted that position of retailers such as Tesco Multinational Corporation strengthens in every day course of action (Sheth and Sisodia 2015).
Tesco Multinational Corporation is struggling in current market scenario because of high competition where the suppliers get an edge over others (Schlegelmilch 2016). Tesco Multinational Corporation needs to build healthy relationship with the suppliers with respect to get products at competitive prices. The bargaining power of suppliers is reasonably low. It is noted that suppliers mostly gets inclined towards main food as well as grocery retailers and dreading towards losing their business contracts with large supermarkets. In other words, the position of the retailers such as Tesco Multinational Corporation and Sainsbury further strengthens as well as negotiations that are positive for getting the products at lowest prices from the suppliers (Peters et al. 2013).
Suppliers are in the average state where competition is very high and tough so there is a great chance for the suppliers in establishing links with various companies for the same product. Tesco Multinational Corporation had more than 500 suppliers at a time where the company make sure that they do not sale same products for other companies. Tesco Multinational Corporation has to maintain relationship with the suppliers as well as definitely earn their loyalty towards the company (Möller and Parvinen 2015).
Supplier power can be referred as the amount of power when the provider of goods exerts over the purchaser of these goods in the case for supplier of Tesco Multinational Corporation. Supplier power changes in accordance to price such as quality or amount of the product.
Number of suppliers- Tesco Multinational Corporation has a plethora of suppliers for each of the grocery product that takes into account 800 dairy farmers when these information suggest that Tesco Multinational Corporation are very much in control of the terms based on which they receive products (Meffert 2013).
Ability to substitute- Tesco Multinational Corporation has the ability to substitute products that is relatively high when they have numerous suppliers as explained in an example of the supply of 800 dairy farmers in an organization (Martín-de Castro 2015).
Bargaining power of suppliers takes into account to gain an insight of information on how far suppliers has the power for purchase of products in the retail sector. Tesco Multinational Corporation is a retail sector organization that faced stiff competition from other retail giants such as Aldi and Sainsbury. Bargaining power of suppliers are low and it need support from the own brand of Tesco Multinational Corporation in the most appropriate way. It is all about understanding the advantages of the situation that need proper attention by the company. Tesco Multinational Corporation re-position the image by improving the outlets, warehousing facilities, administrative systems as well as stock control. Tesco Multinational Corporation needs to achieve strategic opportunities where they need use Information Technology in relation to market forces. Further, they should get involved in strategic collaboration, business diversification as well as market focus and management improvement (Kumar et al. 2013).
The small departmental stores as well as convenient stores trouble Tesco Multinational Corporation where the company fulfills the demands of the customers (Kotler et al. 2016). The threat for Tesco Multinational Corporation is very low, as they have created their distinctive brand identity. The peril of substitutes in the basic supply retail market that had kept low for food things as well as medium to high especially for non-food things. Tesco Multinational Corporation is a hazard to the specialty shops. In addition, the wheeling as well as dealing vitality of buyers is considered low. The threat of substitutes at Tesco Multinational Corporation is considerably low especially for food items as well as medium to high for non-food items at the same time. As far as food retail market is concerned, the substitutes for the main food retailers are the small chains of convenience stores, organic shops as well as off licenses that are not looked as a threat for supermarkets like Tesco Multinational Corporation as they provide high quality products at significantly lower prices. Furthermore, Tesco Multinational Corporation is further getting hold of these shops by opening Express stores also in local town as well as city centres that had created hurdle for these substitutes for entering the market. Nevertheless, the threat of substitutes for non-food items such as clothing that is high. It is required to understand the fact that there is economic recession where the customer’s shows interest towards discounted prices and it becomes threat to the specialty shops in the most appropriate way. Threat of substitutes considered to be low in this current era of retail industry where the main interest lies in the fact that retail market concentrates on the satisfaction as well as needs and wants of the customer. In addition, the retail sector mainly prefers to provide quality services to their targeted customers that cannot be copied by any of the nearest competitors. One of the major threats that are faced by the retail sector is more than one supermarket retail chain in the particular area. It is necessary for Tesco Multinational Corporation for considering the particular fact and considers the possibilities where they can avoid the current situation as far as possible (Kew and Stredwick 2017).
The feature is completely apparent when the organization is forced for competing with establishments that offers substitute products. Threat of substitute products are kept lower that means one location for all items and others at the same time (Johnson et al. 2013).
Substitute performance- It is noted in the recent years that performance of substitute products are kept higher by the end of the 2015. Competitors such as Lidl and Aldi can be considered as substitute retail companies who managed to accumulate 10% of the grocery market. They had put Tesco Multinational Corporation in a tough position as well as required for maintaining level of profitability (Hollensen 2015).
Cost of change- Based on the high street activities of Tesco Multinational Corporation, the cost of change considered lower for consumers. Furthermore, Tesco Multinational Corporation need to compete with the express stores and corner shop like presenting a distinct advantage to the business when they offer essential groceries and exercise a cost leadership strategy.
Bargaining power of buyers are high because of availability of substitute as well as other retail stores (Frynas and Mellahi 2015). In addition, Tesco Multinational Corporation needs to keep the price low as well as rational with respect to capture the main portion of the market. Tesco Multinational Corporation had offered loyalty card as Clubcard is the best customer support framework that went through forms of productivity of Tesco Multinational Corporation business. Tesco Multinational Corporation had been controlling the capacity as well as holding their customer base. Therefore, Tesco Multinational Corporation is a retail giant company that had kept their esteem low as well as sensible that concerns for getting genuine piece of market. The bargaining power of buyers are high where the products have slight differentiation as well as standardized as the switching cost is very low and buyers can easily switch from one brand to other. In addition, it is noted that customers are attracted towards low prices as well as with the availability of online retail shopping when the prices of products are easily compared with others. Loyalty cards were one of the way where buyers gets motivated for purchasing more of products offered by Tesco Multinational Corporation (Foxall 2014).
The power of consumers is considered high when there is competition of product that is pretty much higher. It depends upon the choice of the buyers at that particular time. The preference of buyers depends mainly on economical condition as well as quality provided by the retail chains and choices made by these retail giants at the same time. Tesco Multinational Corporation needs to consider the factor especially in the marketing strategy for the business enterprise (Armstrong et al. 2015).
It is important to consider the fact that bargaining power of buyer pronounces as well as analyzes the consumer level of influence on the price, quality, and customer’s services. The customer of Tesco Multinational Corporation had strong effect over the previous outlined factors as it is shown in the frequent price cuts of major brand products in stores. It is noted that customer service feedback forms are made available in both store as well as online medium.
Number of customers- Tesco Multinational Corporation accumulated more than 44% of British households that was 18 years as the landscape has changed and detailed statistics are mentioned in the intervention of Lidl and Aldi supermarket chain.
Difference between competitors- There is difference noted among the competitors that had been delineated as it is conveyed in the section and shown as quality differences for reiterating both Waitrose as well as Marks & Spencer after focusing on the middle to upper class consumers on the high street (Aremu and Saka 2014).
Lidl as well as Aldi mainly focus on those that are less disposable differences especially in cost leadership as it had greater strain on the big four supermarkets where the consumers shows interest in purchasing groceries under one roof.
Price sensitivity- It is important to take into account several immediate effects of the British European Union Referendum for the year 2016. It depends upon the price of goods that looks as an increase over contributing for checking the overall inflation in the UK economy as it shows rise in the Consumer Price Index. There had been sharp fall in value of the British pound sterling for articulating by the companies. In that way, groceries had become one of the necessities, as consumers need to purchase groceries on every day basis because of habitual buying behavior. Therefore, some of the consumers mainly exhibit the tendencies of variety as it seek behavior for ascertaining the best price and auxiliary support for these types of hypothesis when there is rise in the Unilever proposed prices (Agnihotri et al. 2016).
After examining the five forces model of Tesco Multinational Corporation, it is understood that Tesco Multinational Corporation need to involve in clear strategies for the company that intensifies and function well in recent times. Marketing strategies that are adopted by Tesco Multinational Corporation mainly focus on quality for several reasons. It is important for differentiating the product in case of luxury brands. The response was for the crisis of marketing that had been considered as remedial marketing. It is important for considering the fact when competition relies upon quality of products that less risky for competing on price factor. It is essential for retail companies to understand the needs as well as nature of competitive environment of the marketplace that had been succeeded over the years. Porter five forces model plays major role in the retail market industry. After implementing Porter five forces model by Tesco Multinational Corporation, it becomes helpful in identifying the issue so that they can attain future objectives in the most appropriate way. It is important for analyzing the forces as it helps companies for identifying the competition sources of rivalry firms. Porter five forces model is simple to use as well as powerful tool that explains both strength of the current competitive position.
As per the earlier discussion, it can be seen that Tesco operates in the retail industry of food and retail industry. It is a fact that the level of competition in the food and grocery industry is extremely high. There are many large companies in the same business field of Tesco; they are Sainsbury, Asda, Morrisons, Waitrose and many others. It has been seen that Tesco faces intense competition from these companies. All these companies including Tesco compete among each other over several factors like price of the products, type of the products, promotional activities and many others. All these companies are increasing their market share by providing quality products and services to the customers. The market share of Sainsbury increased from 15.8% to 16.1%; the market share of Asda increased from 16.6% to 16.8% and the market share of Morrisons increased from 11.3% to 11.6%. Thus, it can be seen that all the companies are getting the necessary competitive advantage that is creating immense competition in this particular industry. The growth rate of this particular industry is slow when compared to the other business industries. In this slow market growth, the increasing market share of the competitors is creating competitive threats for Tesco. It is a hindrance for Tesco to get the position of market leader in this particular industry. There is not any lack of competition in the rural areas. Some of the major retailers of rural areas like Somerfield and Co-Op are creating major competitions for Tesco (Chen, Delmas and Lieberman 2015).
Some companies provide hard discount at the time of recession; some of these retailers are Aldi, Lidl and others. These companies are called the hard discounters. At the time of recession, these companies attract a large number of customers. This process affects the business of Tesco. In the year of 2008, these hard discounter companies registered a growth in sale of 25%. There are some major factors in the rivalry among the competitors in the food retail industry; they are the advertisement expenses of the companies and the level of differentiating of products and services. It is obvious that that the companies providing superior quality of products and services get the necessary competitive advantage. One of the major facts is that there is not any switching cost for the customers in the food retail industry. This factor also helps in the increase of the level of rivalry among the competitors. It can be seen that there are many small retailers that are providing tough competition to Tesco. The main reason is that all these small companies are providing superior quality of products to the customers in the most affordable prices; the excellent quality of service is another reason. All these small companies are together creating more competition to Tesco. Thus, from the above analysis, it can be seen that competitive rivalry is an important macroeconomic force for the business operation of Tesco. It is required for Tesco to consider all these above-discussed aspects of competitive rivalry (Bettis et al. 2016).
For the development of the business organizations, the drivers of changes play an important part. Drivers of change refer to certain factors that are helpful in bringing the positive changes in the business organization. There is not any exception of this fact in case of Tesco. In case of the business operations of Tesco, certain drivers of change are there for the future development of Tesco. It is the responsibility of the management of Tesco to put great emphasis on the development of these drivers of changes. All these drivers of change are discussed below:
A Differentiated Brand: In order to get the necessary competitive advantage, it is necessary for Tesco to differentiate their brand. There are many ways for brand differentiation; they are product differentiation, service differentiation, differentiation in the advertisement campaign and many others. It is necessary for Tesco to develop products with unique features. These products will be helpful to attract large number of customers. Apart from this, there must be excellent services for the customers. All these aspects will be able to differentiate Tesco from the other companies in the same field. These changes Tesco needs to bring in their business operations (Bergh et al. 2016).
Reduce Operating Costs: Operating costs are considered as one of the major parts for the business operations of Tesco. The management of the company needs to develop effective cost management strategies to minimize the operating costs of business. The reduction in the operating costs of Tesco will lead to the greater amount of profit for the company.
Generate Cash from Operation: Cash is needed for the smooth running of the daily business operations of the companies. The only way to generate more cash in the business is to increase the proportion of sales. Tesco needs to implement effective strategies to increase the amount of sales. The increase in the sales will increase the amount of cash in the business operations of the company (Baker 2014).
Maximize the Marketing Mix: Marketing mix consists of product, price, place and promotion. All these aspects are crucial for the marketing success of the companies. Tesco needs to implement effective ways to maximize the marketing mix. It implies that the price of the products needs to be more accurate so that every people can afford them. The promotional strategies of Tesco need to be more effective so that they can get to more amount of people. Apart from this, the products needs to be available in all places for the customers.
Maximize Value from Property: It is required for Tesco to maximize the value of the properties of the business. It can be done with the help of proper valuation of the properties of the business. The valuation process needs to be done in the effective way (Barney 2014).
Innovation: Tesco needs to be innovative from every aspect of the business. The products of the company along with the business processes need to be innovative enough to get the necessary competitive advantage. Innovation will help to increase more customers towards the business (Bejou and Palmer 2013).
Conclusion
The report has made the detailed analysis of various aspects of political, technological, social, economic, legal and environmental factors. Detailed explanation of porter’s five forces of Tesco has also been done. From the above analysis, it can be summarized that Tesco despite facing various struggle in light of retail business environment and increasing competition is still one of the strongest competitors in the retail grocery and food business. It is required by Tesco to pursue both cost leadership and differentiation strategies. In the retail market industry, Tesco holds a competitive position in spite of existing turbulence. Lean management and strategic approached adopted by Tesco has helped them in gaining such leadership position in retail industry. By making strategic use of information technology, Tesco has been able to surmount the analysis provided by the porter’s five forces. This has also been achieved through adoption of lean and agile management of their supply chain. Competencies of organizations are aligned with their environment in which business operates and this provides them with positive outlook for future. There have been necessary changes made by Tesco in service operation such as replenishment policies, international logistics and management of warehouse. Organization makes all the changes in accordance with cultural and legal sensitivity of different countries. Tesco has been able to maximize the profits of overall supply chain by adopting highly advanced system of technologies. It is required by organization to have development of innovative ideas for keeping them sustained in competitive business environment. This will help in gaining competitive ground and thereby dealing with different competitors present in the business.
One of the factors that are considered critical to the success of Tesco is setting clear vision and this need to be supported by devising strategies, monitoring of specific objectives and commitment of establishing such strategies. There is regular monitoring of all the aspects of business and for achieving the targets, it is required by organization to ensure that appropriate plans are adopted. The commitment of Tesco as responsible retailer in society is done in a very efficient way. Tesco’s commitment is demonstrated through by focusing on the essentials and three big ambitions. A decision area of organization takes into account all the stakeholders such as communities, customers, suppliers and all the staff of members’ organization.
Across the globe, Tesco needs to preserve consistent operations of their service due to expansions that are taking place across countries. At both international and national level, organization needs to develop system of dual monitoring. For maintaining consistency in service delivery, Tesco needs to technology and their logistics up gradation. For achieving the profitability in their supply chain management, it is required by organization to make track of cross country movements of services and goods as this will help in replicating the success for organization on global platform.
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