P1. Positive and negative impacts of the macro environment on the Tesco’s business operations
Tesco, the multinational food retailing company holds title for the second largest retailer after Wal-Mart, with its stores in twelve countries. Apart from food retailing services, it expands its business providing finance, hardware services, insurance, mobile, non-food products and others as evaluated through PESTLE analysis of Tesco (Wood et al. 2016).
Pestle as an external factor, with its disadvantages allow multiple advantages on Tesco’s business organization by providing a simple and easy-to-use framework. The positive aspects involves cross-functional skills and productivity, encourages strategic thinking within its operation, reduces potential threats, provides successful mechanisms enabling effective work production in identifying multiple job opportunities, finally, entering new markets globally (Karim et al. 2015).
As Tesco functions across national borders, political factors affect the business operations and performance of Tesco. The political factors include tax, security of country Tesco operates in. Tesco’s operation and management is influenced by the acts of legislation and country’s rules and regulations that it seeks to operate. Increase of VAT rates affects negatively the revenue of sales produced by Tesco (Zubizarreta et al. 2017). The ultimate source of income of Tesco is its sales revenue; therefore, the outcome follows the profit margin. Alarming threat of illness affects the sales revenue of Tesco, for which government of UK suggested in embracing control of obesity and medical issues, to which Tesco introduced a healthy food range in the year 2014. Tesco provides job opportunities for the mass that include students as well as elderly people, creating jobs for domestic population and helping the stabilization of finance. With Tesco’s employment opportunities, it even upholds and encounters huge demands of products resulting in the diversification of workforce.
Economic factors affect Tesco’s business operation influencing its costs, profits, demands and price. The decrease in the effective demand of certain products is affected by the unemployment structure resulting in low-production of such goods (Wood et al. 2016). During economic-recession, unemployment increases, as a result, it reduces disposable income and allows customers in buying cheaper products. Tesco should be aware of any change in policy and regulation, price-rates and taxation that might affect the approachability of finance. The two key business strategies that are internalization and diversification helped in Tesco’s progression and advancement (Lee and Vachon 2016).
Society is a major macro-level environmental factor affecting Tesco’s business operation. Customer’s demands of products and goods are affected by their belief and social attitudes. The beliefs and attitudes are governed by social conditions, as people are concerned about health issues more that determine their selection of products. Tesco thus tries to adapt the change in the mode of demands of customers, producing more of organic goods. Tesco examines that there is a gradual shift from bulk shopping toward limited shopping or one-stop shopping, which inculcates in the production of non-food products (Zubizarreta et al. 2017).
Technology enhances the advancement of Tesco’s production of new products. Technology helps in mass production with the wants and demands of ready availability of products. Therefore, the technological factors benefit both the customers along with the organization. Customer is satisfied through efficient service response, for which Tesco stands as the second largest retailing company, implementing its best strategies on workforce and productivity. With the use of wireless devices, electronic shelf-labeling, electronic funds transfer systems, electronic scanners, radio frequency identification and self-check-out machine, Tesco becomes successful in its operation (Karim et al. 2015). These factors acknowledge Tesco’s efficiency of distribution and stock activities.
The policies, rules and regulations, legislations established by the government impacts the business process of Tesco. The factors include unnoticeable price alterations, demands of payments from suppliers, untimely practices and others (Prajogo, 2016). In addition, there are powerful competitors against Tesco creating threats in the form of price-rates where there is an equal competition of rates of products, thereby, associating with strong differentiation of products. Therefore, Tesco lowers prices on fuel-purchased goods and promoted goods, on the other hand raises price elsewhere in the store.
Tesco has been acknowledged for its responsibility towards the society it operates in, both national and foreign. Tesco looks out on the effects of global warming and restraints its operation being affected from it (Iles, 2007). Tesco is trying against the steady utilization of energy and greenhouse gases, aiming in protecting environment. It is examined that Tesco helped in reducing carbon footprint and waste products and increase an awareness of social commitment among its employees.
P2. Analysis of internal and external factors in identifying Tesco’s strengths and weaknesses
Tesco being a large retailer in UK, with competitors worldwide, possess the largest market share generating considerable revenues in effective manner. Tesco has full command over the sales channel that increases beyond the market expansion despite any decline (decline in overall sales), positively affecting heavy utilization of online sales-channels in the ongoing marketplace (Bull et al. 2016). For instance, in the year of 2015, Tesco’s online development grew with 20 percent despite facing pre-tax loss of Great Britain Pound 6.37 million in the same year. Clubcard benefits Tesco on various levels. It is used as an effective tool in increasing consumer purchase-process, consumer loyalty. This is done by adding one point in the Clubcard of each customer for respective Great Britain Pound spent (Rothaermel 2016). The Clubcard helps in assessing consumer behavior and feedbacks, implementing them in altering and advancing their products. The Brand (Tesco) or the company property itself increases its annual sales revenue (Prajogo 2016). The establishment of Tesco’s strong portfolio helps the company in gaining huge financial resources in dealing with any immediate emergency, and this is done by selling a part of its property.
As examined, Tesco underwent a weaker performance in the previous year and in the year 2009 as compared to its brand competitors. Tesco was affected by the replacement of number of products, recalling of its goods that affected the finance and sales revenue creating an ill reputation of the brand (Bull et al. 2016). The company’s significant operations take place in UK where the recorded revenue of seventy five percent during the fiscal year of 2009, resulting in the diversification of location and systemic risks in the overall Tesco market effecting highly the market of UK, counted as a weakness for Tesco.
With the popularity of Tesco, it creates opportunities of job for a large group of people and attracts millions of customers, accounting 1 million of customers in the year of 2010. Such opportunities allow profitable functions focusing on a global expansion. The diversification of geography allows the company to improve its price-rate and economic scale, minimizing the possibilities of risks (Anderson and Abensour 2017). Tesco’s mobile has outgrown among millions of customers in 2015, following major development and expansion in technological area.Coursework Writing Help online at Pocket-friendly rates.
There is a shift in price architecture of Tesco by the credit crunch that lowers available income, affecting the strategies that need to change lower-priced common goods, focusing less on the high-priced goods. There has been an inconsiderable cost-growth of raw materials affecting negatively the profit margin of Tesco (Crane and Matten 2016). Exporting restrictions in specific food-products reduces Tesco’s margin rates on products allotted already low margins. Consumer’s change in demand and behavior is a major threat for Tesco’s business operative system. With the change in technology and social conditions, consumer’s patterns differ that result in product area evaluation and alteration.
Porter’s five forces:
Rivalry or industrial competitors state several factors such as cost differentiation, product differentiation, capacity, output, growth of company and its market, sales revenue. It is important in indentifying Tesco’s competitors (Dobbs, 2014). Rivalry increases growth rate, therefore, it affects both positively and negatively. With the growing competition, Tesco never fails in indentifying the best quality products and implements essential strategies in meeting such rivalries.
Distribution channel creates multiple modes of entry. It creates complexities among already established chains in the channels of distribution. In addition, the economy-scale signifies that more number of economies indicates less threat of entry, that is, entrants are unable to get maximum market share, causing major-cost disadvantages (Dobbs, 2014).
It is widely acceptable by the customer’s to deal and purchase from a number of suppliers, as it is economically feasible, but it does not occur with Tesco as it does not allow multiple mode of supplies. Tesco is economically profitable through the purchase from one retailer instead of a host of retailers.
In Tesco, there is an advantage of dictatorship over price of products, as well as in allotting payment of the supplier as suppliers. For instance, if retailers refuse in paying the price the former has asked, they will not be left with any option other than to sell. As this is the only way, the retailer would be able to save and sustain its small-market chains (Iles, 2007).
The availability of effective substitutes of any product allows ceiling of prices that the producers of same product would charge, unless any seller of same product would update and upgrade its quality, in turn reducing its cost or differentiating the product with its substitutes. However, this allows a major opening for Tesco in improving the quality of its product ensuring better performance over its competitors (Lee and Vachon 2016).
P3. Strengths and weaknesses linked to external macro-factors
Tesco under the external environmental factors experiences several changes. The company cannot control the aspects of external factors, but can respond to such changes, in bring out proper management and business operation (Pawliczek and Rössler, 2016).
- With the everyday reports of economic conditions, with the help of media enables the company manager to gain full information about economic conditions prevailing. This helps the manager in forming strict strategic plans and policies.
- The market condition changes rapidly with major turnovers. This leads to constant competition, however, allows Tesco to recall the existing and alter modes of productivity in heralding business expansion. This helps the company in the betterment of its product’s quality and quantity (Bull et al. 2016).
- Taxation under legal external factors assumes both strength and weakness of any company. Some taxation occur after plenty of years giving time to the company in preparing proper and effective business.
- With the establishment of internet media, that is undergoing rapid change and success. The business of Tesco is conducted online that constraints time and allow business to grow faster with the connection and loyalty of customers (Grefrath et al.2017).
- Opportunities are driven by external factors. By using external factor analysis as PESTLE, opportunities can be found and strengthen Tesco’s business model. With the opportunity of technological trend and new social media channel, Tesco is benefited in building a marketing strategy against its competition.
- If external factors enable the understanding of political, social, and economic factors, it is used for analyzing specific products, customer relationships and marketing plans. For instance, if a country faces an increase of fifteen percent of population within a certain city, it affects the business roundly (Dobbs, 2014). It affects both positively and negatively, but if there is an increase in elderly citizens and the company targets the age within 20-30, then it provides a chance to deliver its product to the newer group of population, enhancing efficiency and productivity.
- Certain increase in the rate of interest and unemployment leads to lower utilization and consumption of specific goods and services. For instance, people undergoing financial crisis would spend on cheaper goods, and tends to spend less on sport accessories, cars, luxurious goods and others, therefore, financial crisis can cause changes in the external environment that can be non-profitable.
- Technological advancement and changes are rapid, as a result, it is the company’s major concern in keeping up with the regular changes to adapt sufficiently to technological change and reduce the market risk. It affects not only the production process, design of products but also the distribution channels and delivery process (Anderson and Abensour, 2017).
- Similar to the changes in law, changes occur in governmental policies without notifications or warning. For instance, the company’s dependence on government’s financial assistance, are affected by such change, as certain funding assistance may disappear without any warning and notice.
- Anderson, J. and Abensour, J. (2017). Measuring Your Company’s Impact: How to Make the Most of Sustainability Reporting Frameworks. In Managing for Social Impact (pp. 255-271) Springer International Publishing.
- Bull, J.W., Jobstvogt, N., Böhnke-Henrichs, A., Mascarenhas, A., Sitas, N., Baulcomb, C., Lambini, C.K., Rawlins, M., Baral, H., Zähringer, J. and Carter-Silk, E. (2016). Strengths, weaknesses, opportunities and threats: A SWOT analysis of the ecosystem services framework. Ecosystem services, 17, pp.99-111
- Crane, A. and Matten, D. (2016). Business ethics: Managing corporate citizenship and sustainability in the age of globalization. Oxford University Press.
- Dobbs, M. (2014). Guidelines for applying Porter's five forces framework: a set of industry analysis templates.Competitiveness Review,24(1), pp.32-45
- Grefrath, C., Wagner, D., Macchi, M., Granados, M.H. and Stermann, S. (2017). Methods and Tools for Sustainable Development of Products and Services. In Value Networks in Manufacturing (pp. 223-246). Springer International Publishing.
- Karim, K., Suh, S., Carter, C. and Zhang, M. (2015). Corporate Social Responsibility: Evidence from the United Kingdom. Journal of International Business Research, 14(1), p.85
- Pawliczek, A. and Rössler, M. (2016). Knowledge of Management Tools and Systems in SMEs: Knowledge Transfer in Management. Knowledge Management Initiatives and Strategies in Small and Medium Enterprises, p.180