Analyzing The Business Environment Factors Affecting Tesco In The UK Market

Demographic Forces

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.

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 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

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 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:

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).

Ecological Forces

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 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.

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

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.

Economic Forces

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.

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 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.  

Technological Forces

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%.  

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 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.

Socio-Cultural Forces

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 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.   

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.

In case of the flat structured organisation, it can increase the employees’ level of benefits and it can decrease the excess of layers within the organisation. In the flat structure, the employees can make discussion with another department also and communication among employees becomes good and healthy (Crane and Matten 2016). There are fewer levels of management and interdepartmental communication increases.

Political:

Tesco does its business in six countries in the Europe (The UK, Hungary, Ireland, Czech Republic, Turkey, Poland and Slovakia). It has stores in Asian countries, it makes clear that Tesco has to follow different political conditions in many countries and performance gets highly influenced (Wetherly and Otter 2014). Employment legislation, unemployment law, tax and tariff-based political decisions make the impact on the Tesco. Tesco employs as per the government regulation to the students, disabled people and elderly workers. In the UK, government levies on fiscal policy, Tesco’s revenue may change according to this.

Strengths

Economic:

Economical factors of the organisation can directly impact on the retail industry and it can influence on a long-term basis. In the UK, the rise of inflation rate can affect Tesco’s price. This could affect the purchasing power of the customers in the UK. GDP of the UK has been decreasing since the incident of Brexit and EU based countries would not do business with the UK. Tesco is facing the issue of a slowdown of a supermarket.

Social:

In recent time, British population have been shifting their tastes in organic food and non-food items are available in the supermarket chain. In this regard, the female population are also working in the supermarket as sales executives. Retail chains in the UK are trying to provide added value products. Consumers in the retail chain believe in mostly the healthy products and they focus on the attitudes to the products (Atkinson and Bourguignon 2014). Tesco has adopted some strategies like taking cheques and cash at checkout in order to retain customers.

Technological:

In the retail chain, organisations are using various technologies in order to make the work easy. Moreover, Tesco has upgraded its website in order to reach maximum customers and that result to the increase in the revenues by 10%. In addition, online experience of Tesco has been playing important role in gaining the market share. Tesco has developed the checking out system and in the checking in the way, Tesco installed heat sensors. Tesco has been using sensor scanner and modernised barcodes in order to stop the theft of the products. Tesco has been using the technique to detect the last time offenders in order to be more careful.

Legal:

In food retailing section, Tesco has been following the guidelines of Food Retailing Commission. Food Retailing Commission has enforced certain rules like demanding of products and banning of the current practices. Moreover, in selling the fatty products, Tesco has to follow some rules. Tesco follows the legal requirements that help them to access the raw material for the products. Supermarkets in the UK have to follow Groceries Supply Code of Practice (GSCOP) and Competition Commission makes recommendations to the supermarket (Cheshire et al. 2014).   

Environmental:

Most of the supermarkets play important role in managing the society and environment with responsible way. Retailers try to manage the waste in a biodegradable way that would help the society. Tesco plays a significant role in corporate social responsibility that ensures that all the stakeholders can get the benefits. Tesco’s corporate governance launches the new strategy that can ensure sustainable consumption in cutting the waste with reducing the environmental damages.

Internal Factors
External Factors		Strengths · Supply networks (S1) · Employee satisfaction (S2) · Brand value (S3)	Weaknesses · Group profit decreased by 1.3 billion (W1) · Retail cash flow (W2) · Debt threat, 20 billion GBP (W3)
Opportunities · Lower corporation tax (O1) · Sales of organic food (O2) · Grow online shopping (O3) · Emerging markets (O4)	Tesco has established market share and they can use product mix strategy and introduce new products like organic food will be beneficial (S2 O2) Establishing new supply network (S1 O3)	Declining sales can be mitigated through the taking the advantage of competitive grocery market (W1 O3)
Threats · Economic factors (T1) · Food price rising (T2) · Labour threats (T3) · Consumer confidence (T4)	As Tesco is the market leader they can open new discount stores (S3 T4) Food price rising can lead to introducing new products (S2 T2)	Loss of sales can hamper the growth of the organisation, it can open new convenient stores (W2 T3)

Table: TOWS analysis of Tesco

(Source: Researched by learner)

External and internal factors of the organisation Tesco prove the facts that Tesco has brand value and it has large market share. However, it has been opened to threat in economic factors. In order to minimise the threats and weaknesses, new outlets in neighbouring places of the customers and improved supply chain can be useful. Tesco has the significant threat from global retail leaders, however, price cuts and product mix strategy can be the helpful strategy for Tesco.

Conclusion 

It has been observed that the interaction between environment and business can provide strengths and opportunities to the business. The interaction with the environment can lead to open up new frontiers of growth for the business and it helps in identifying the business growth. Moreover, in supermarket industry, external factors are important for understanding the challenges and in case of micro environment; the managers need to be motivated to bring out the best from employees. Structures and departments of the organisations in public, private and voluntary sectors pose significant impact on decision-making. Business environment is important as it helps in building image and meeting the competition. Moreover, it helps to identify the strengths and weaknesses of the organisation and decision-making capability of the business.

Reference List 

Atkinson, A.B. and Bourguignon, F. eds., 2014. Handbook of the income distribution. Berlin: Elsevier.

Baker, M.J. and Saren, M. eds., 2016. Marketing theory: a student text. London: Sage.

Bryman, A. and Bell, E., 2015. Business research methods. Oxford University Press, USA.

Carroll, A. and Buchholtz, A., 2014. Business and society: Ethics, sustainability, and stakeholder management. London: Nelson Education.

Cheshire, P.C., Hilber, C.A. and Kaplanis, I., 2014. Land use regulation and productivity—land matters: evidence from a UK supermarket chain. Journal of Economic Geography, 15(1), pp.43-73.

Crane, A. and Matten, D., 2016. Business ethics: Managing corporate citizenship and sustainability in the age of globalization. Oxford University Press.

Deloitte United Kingdom. 2017. Retail Trends 2017. Available at: https://www2.deloitte.com/uk/en/pages/consumer-business/articles/retail-trends-2017.html [Accessed 14 Oct. 2017].

Drucker, P.F., 2017. The Theory of the Business (Harvard Business Review Classics). Harvard Business Press.

Ebert, R.J., Griffin, R.W., Starke, F.A. and Dracopoulos, G., 2014. Business essentials. Pearson Education Canada.

Fernie, J. and Sparks, L., 2014. Logistics and retail management: emerging issues and new challenges in the retail supply chain. London: Kogan page publishers.

Hamilton, L. and Webster, P., 2015. The international business environment. Oxford University Press, USA.

Hutchinson, K., Donnell, L.V., Gilmore, A. and Reid, A., 2015. Loyalty card adoption in SME retailers: the impact upon marketing management. European Journal of Marketing, 49(3/4), pp.467-490.

Magrath, V. and McCormick, H., 2013. Marketing design elements of mobile fashion retail apps. Journal of Fashion Marketing and Management: An International Journal, 17(1), pp.115-134.

Prajogo, D.I., 2016. The strategic fit between innovation strategies and business environment in delivering business performance. International Journal of Production Economics, 171, pp.241-249.

Retaileconomics.co.uk. 2017. The market leader of UK retail economic analysis | Retail Economics. Available at: https://www.retaileconomics.co.uk/ [Accessed on 14 Oct. 2017].

Sun, Y., Guo, P., Ma, Z., Li, T. and Dang, S., 2014, November. UK-based external business environment analysis of outdoor adventure clothing using the PESTEL tool and its future outlook. In Information Technology Systems and Innovation (ICITSI), 2014 International conference on. pp. 306-309.

Wetherly, P. and Otter, D. eds., 2014. The business environment: themes and issues in a globalizing world. Oxford University Press.

Wild, J.J., Wild, K.L. and Han, J.C., 2014. International business. London: Pearson Education Limited.

Wood, S. and McCarthy, D., 2014. The UK food retail ‘race for space’and market saturation: A contemporary review. The international review of retail, distribution and consumer research, 24(2), pp.121-144.

Yu, W., Ramanathan, R. and Nath, P., 2014. The impacts of marketing and operations capabilities on financial performance in the UK retail sector: A resource-based perspective. Industrial Marketing Management, 43(1), pp.25-31.