business environment report

College of Technology London

An analysis of the changing business environment over the last five years on TescoReport (Assignment)

Lecturer: Georgio Georgiades

Student: Mohammad Azad Hossain

Student ID: 103428-78

Submission Date: 17 Dec 2010

Contents

1. Synopsis .................................................................................................................. 3

2. Introduction .......................................................................................................................... 3

3. Discussion .............................................................................................................................. 4

3.1. Macro-Environment ........................................................................................ 4

3.2. Micro-Environment .......................................................................................... 7

3.3. Porter’s 5 Forces ................................................................................................ 7

3.4. SWOT Analysis .................................................................................................... 9

4. Company Overview .......................................................................................................... 11

5. Recommendation ............................................................................................................. 14

6. Conclusion ........................................................................................................................... 14

7. Reference ............................................................................................................................. 15

8. Reference of figure .......................................................................................................... 16


1. Synopsis:

This report will briefly describe and assess the change of business environment of a UK

based cosmopolitan business TESCO PLC over previous five years. Key focal-point will

be to recognize, explore as well as appraise major points those contain direct or indirect

impact of this company. What type of changes could affect them and what and how they

need to cop-up with it. In order to explore this report will use some important tools. Such

as, to analyze macro environment PESTLE.

In addition, to explore micro environment which is other part of business environment,

this paper will consider view or attitude of Employee, Supplier, and Customers etc.

Besides this, to indentify Strength, Opportunity, Weakness and Threats to the company

will be used SWOT tools and Porter’s 5 Forces to explore competitive environment. In

addition, after evaluating the data paper will describe his point of view what they can do

to cop-up with the changing business environment at the end part of the report.

Some figures as well as graphs will be use to understand marketing concept.

2. Introduction:

Business environment indicate as a whole which have influencing power in business

decision making. Before taking any type of decision managers should consider the factors

of changing business environment and threats to the company also included here.

Because companies have to proof itself to resolve everyday challenges, alternative

products, new competitors, new laws and customer mind can be changed. Another way,

business environment and be critical for the company.

As an example, Woolworths Plc. has closed as a bankrupt company. As they were unable

able to meet the challenge of recession period 2008-08 (Wolf, W. 2009).

Another example, Encyclopedia Britannica the print publisher went almost bankrupt after

200 years of its prosperity the reason was electronic encyclopedias, i.e. Microsoft Encarta

and Wikipedia. Managers have to be careful in the time of analyzing business

environment to protect business (John son et al, 2009).


Level:2

Marketing Function

Political/ legal

Customers

Public

DistributorsExternal Marketing service

Level: 1Level:3

Physical Competitors

Technological

Micro-Environment

Socio-CulturalDemographic

Intra-firm Environment

Customer

R&DPersonal

Production

Suppliers

Macro-Environment

3. Discussion:

Business environment include every factors which could be internal or external and those

have influence on that particular business directly or indirectly.

3.1. Macro-Environment:

These external factors have indirect effect on business where business cannot do anything

against but needs to adopt otherwise it cannot run properly or their competitors will take

this opportunity. To discuss macro environment, PESTLE tools need to be considered.

That is abbreviation of Political, Economical, Technological, Legal and Environmental.

Figure: 1. layers in the environment

Adopted from: Lancaster, G. and Massingham, L. (1993).

3.1a. Political:


Economic

Company needs to consider the political situation where they operate or tends to operate,

including areas such as political stability, environmental regulation, minimum wages,

working hours, unemployment rate, employment laws, trade restrictions and reform,

tariffs as well as democracy.

Tesco try to keep good relationship with government as well as political party. According

to the annual report of 2010 Tesco donated £31,221,573 (2009 – £28,278,867) in cash for

charity and they also contribute in political events. Fair trade office is monitoring UK

grocery retailers for rising market concentration.

3.1b. Economical:

The economic condition of that particular country is very important. Company needs to

very careful about what is going on within the economy, such as; economic

growth/decline, rates of interest, exchange rate, tax policy, credit availability, cost of

living. Because, any change in economy can have direct effect to the company.

3.1c. Socio - Cultural:

Socio-cultural environment is very important to read by companies that describe people’s

behavior, minority, age, sex, colour, ethnicity, beliefs, and social changes. Moreover,

company can take the opportunity by demographic study, where they can understand

their taste and trends, so that they can arrange new product in market.

3.1d. Technological:

Now a day’s, technology is changing rapidly. Company needs to examine the new

situation very carefully and quickly as well as they need to train their employee.

Otherwise their competitor will take the opportunity to turn their customer. Here Tesco is

doing well. They have introduced self-checkout as well as electronic fund transfer

system. So that people don’t need to wait for long queue. They’ve started online shopping

system such as, “Tesco.com”.

3.1e. Legal:


Political factorsGovernment enforceGovernment polices

Economical factorsIncrease in growth rate

Large market value

Social factorsCharity

Social care

Technological factorsInnovation motive

Advanced technology

According to Worthington and Britton (2009) Government sometimes, law changes for

customer’s protection, suppliers (copyright & patent laws) and employees (minimum

wage, employee protection). These laws have contact on structure of market as well as

behavior.

In addition, Tesco always obey the UK legal system. Whatever they do, they take

permission from the authority otherwise they stopped it.

Here report will explain a challenge of Tesco which it has faced recently, according to

Bracknell news (2010) Tesco has granted for longer licensing hours to sell alcohol and

tobacco product by court judgment. First of all they applied for longer licensing hour to

the local authority but they refused because it could be anti social activity to sell alcohol

and tobacco product till late. Tesco appeals to court. Court has allowed because that will

not an anti social activity for that particular area.

3.1f. Environmental:

Peoples are very now conscious about their environment. So companies need to be very

careful about green environment. Tesco is doing corporate social responsibilities in a

great way. There is some good example of their CSR. According Tesco CR:

‘They have reduced emissions by 2.0% in UK.

In UK they opened world first zero-carbon supermarket.

They donated £61.6m that is 1.94% of their ‘pre-tax profit to charities and good causes’.

Their ‘UK regeneration partnerships created 358 new jobs for people who were

previously long-term unemployed.’

They support local business, for example with more than 4,000 local line in the UK and

more than 6,000 regional lines in Poland.’

‘91% of supplier around the world says’ Tesco ‘treats them with respect’.

They ‘have launched a Think 25 policy for alcohol sales in the UK’.

‘There are three women on our board of directors. 19% of your directors are women and

last year’ they ‘appointed our first female director in South Korea’.’

(Tesco CR, 2010).


Figure: 2. PESTLE analysis


3.2. Micro-Environment:

Microenvironment factors those which have direct impact on business. These are mainly

internal factors. Companies need to be very careful while considering these factors which

have direct involvement on business decision. This factor includes employee, supplier,

customer, public and competitors.

As Microenvironment factors and Porter’s 5 Forces are closely related each other. So this

report will discuss Porter’s model briefly and evaluate idea for Tesco.

3.3. Porter’s 5 Forces:

These tools are mainly use to analyze competitive business environment and to

understand the changes on business environment.

3.3a. Competitive revelry:


Buyers

Industrial Competitors

Intensity of Revelry

New Entrants

Suppliers

Substitutes

Threat of Substitutes

Threats of new Entrants

Bargaining Power of BuyersBargaining Power of Distributors

Companies need to very careful about their competitors movement. Tesco always take

care about their competitors offers which are great challenge against competitor. They

always try to sell cheaper than their competitor.

3.3b. Bargaining Power of Customer:

This is most important term for a company. Customers are the source of revenue. They

have so many options to switch to competitor any time. Companies need to make their

customer always happy and try to make them loyal. In this situation Tesco is doing well.

Bargaining power of customer is low because their price is always cheaper than their

competitors. The higher price cause higher bargaining power and low minimize that

power.

3.3c. Bargaining power of suppliers:

Revenue depends on supplier and customer. As Tesco has a great level of market share

and a good reputation. And they purchase a great range of product from their supplier.

And ‘91% of supplier around the world say’ Tesco ‘treat them with respect’ (Tesco CSR,

2010). And they bye many kinds of product and they for their huge number of branch so

suppliers can’t bargain with them. And this way they are able to face challenge

competitor.

Figure: 3. Porter’s 5 Forces

Adopted from: Porter M.E. (1980).

3.3d. Barrier to new entry:


Companies need to consider how the competitive market is for new entrants. Here it is

high. It is so difficult to fight Tesco for a small company like LIDL, The Co-Operative.

3.3e. Threat of Substitutes:

Threat form substitutes mainly involved of cost of product. If the products price is high

customer may turn to substitute product to fulfill their needs and want.

3.4. SWOT Analysis:

SWOT tools use for evaluating the companies strength and weakness which is internal

factors of a company as well as threats and the other one opportunity these are external

factors.

This analysis is the establishment for mounting business strategies and policy which

become the road map for evaluating business operational plan (Biz Strategies, 2008).

3.4a. Strength:

Strength is an organizational internal positive factor. Company can major their strength

on base of their reputation, supplier, loyal customer. Businesses strength will be

competitor’s weakness.

Tesco has good strength in market. In competition with ASDA and Sainsbury’s, Tesco is

in good situation. They have good market reputation and wide range of product; have

maximum market share and good relation with their supplier. At this moment they are the

UK’s largest supermarket with more than 29% of market share on the other hand ASDA

got about 15% in UK (Datamonitor Tesco PLC, 2009).


Figure: 4. SWOT Analysis.

Adopted from: Copyright © 2008 Biz Strategies, Inc.

3.4b. Weakness:

Weaknesses are those internal negative factors of a company which will be opportunity to

their competitors. Company should be very careful about their weakness.

According to the data monitor (2009) from UK market their revenue was 73.7% in the

financial year of 2008, moreover, inventory turnover ratio was 19.5 where Sainsbury’s

was 26.2.

3.4c. Opportunity:

Opportunities are the external factors. If company can able to identify and utilize quicker

way then their competitors, they will have competitive advantage (Campbell and Craig,

2005).

3.4d. Threats:

Threats are those internal factors which have effect on business operations negatively

(Campbell and Craig, 2005).


External

external

StrengthSales GrowthStrong Brand

Competitive advantage

WeaknessDepends on UK market

Low inventory Ratio.

OpportunitiesNew productNew market

ThreatTax

WagesOther super Market

External

Internal

Figure: 5. SWOT Analysis


4. Overview of company:

Tesco has top position in retail and food retail section in U K as well as in world. It was

come up as grocery shop at East London by Jack Cohen in 1919 and that was the

beginning life of this company. From 1924 they came with their brand name Tesco. Then

they opened their first store at North London in 1929. Nowadays, about 472,000

workforces are working in 14 regions around the world (Annual Report of Tesco, 2010).

Tesco depend basically UK market where they runing with four different names these

are, Tesco Extra, Tesco Superstore, Tesco Metro and Tesco Express. Now they are

providing online services as subsidiary such as, Tesco.com. They are selling huge range

of food products, cloths along with their own-label products (which are 50% of sales).

Many of Tesco stores have got gas station which is leading to be Britain’s largest petrol

retailer independently. Tesco is jointly worked with Royal Bank of Scotland (RBS) for

personal financing to the people in UK as Tesco Personal Finance. However, their main

competitors in UK are Sainsbury’s and ASDA, Wal-Mart and Carrefour for international.


Challenge is very known word to Tesco. Tesco is operating a huge expanded business. To

make them keep running they are working very carefully. They always take step for

future challenge. By selecting and prompt responding to the social changes they became

Britain’s most favorable retail company from a small beginning. According to talking

Tesco (no date),

‘This ability to understand change, and rise to its challenges, is more important for Tesco

today than ever before. The battle to win customers in the 21st century will increasingly

be fought not just on value, choice and convenience but on being good neighbours, being

active in communities, seizing the environmental challenges, and behaving responsibly,

fairly and honestly in all our actions. Customers may care about price, but when they

shop with us they do not leave their social values at the door.’

(Talking Tesco, no date).

Each and every time their facing challenges against their competitor or with changing

business environment. To compete with their competitor they have some concept such as,

price cut and they do seasonal offer such as, bye one get one/two free, save 50%, price

cut. Moreover, in this competitive market. They are not only responding customer

demands also responding government as well as employment rules and regulations, they

are providing so many kinds of job facilities such as low and higher pay, local people,

flexible, highly skilled as well as student as part time which is encouraged by government

as a retailers (Balchin, 1994). They are also meeting the population category like working

partner, senior citizens as well as disable people. That led them to reduce staff turnover,

loyal customer as well as sustainable business.

They want to become a good neighbour and looking after the environment. To be a good

neighbor they know that nowadays customer want the company will respect our

communities. They believe that they will be able to that by the way of ‘supporting local

sports team’ and giving employment to local people. According to ‘Project for 2006’

them keeping more local product and Tesco Express do not annoying local people



In addition to become ‘environmentally responsible’ they always review how much

energy they are using that leading them to become environmental friendship. By

introducing their plan for community they publicized ‘a ten-step action-plan’ they think

that will improve them to work positively for ‘the environment’ as well as supporting

‘local communities’ what their store serving (Talking Tesco, no date).

According to (Talking Tesco, no date) they are doing:

1. ‘Cutting energy use in our buildings so that by 2010 we will be using half as much

energy per square foot than we were in 2000.

2. Improving our recycling facilities to help customers double the amount of recycling

brought to our stores.

3. Encouraging customers to re-use carrier bags by giving Club card Points to customers

who bring their own.

4. Making healthy eating easier by putting nutritional labels on all our own-brand

products by January 2007.

5. Working with the Pre-School Learning Alliance to help parents and children in some

of the UK’s most deprived areas make healthier choices.

6. Getting two million people active in events we will organize or sponsor in the run up

to the 2012 Olympics.

7. Ensuring our Express stores are a good neighbor by reviewing noise levels, delivery

schedules and shop-front design.

8. Engaging with the community to better understand local issues and concerns.

9. Encouraging more small suppliers by developing our network of regional offices and

making it easier for them to access our distribution network.

10. Celebrating regional food. For example, by working with British farmers to extend

growing seasons so that we sell more British produce and import less’


However, if they are having a problem which could be a challenge to for them they try to

solve immediately such as when a customer got a dirty kitchen towel inside of bread.

Immediately they call that customer and make an apology to her.

‘A Tesco spokesman said: "We are very sorry for this extremely rare find and have

phoned the customer to give a personal apology."’ (BBC, 2010).


5. Recommendations:

Tesco should evaluate their marketing function, intra-firm activities, and macro-micro

environment. They will have to keep continuation the development of product and

market. In reporter’s point of view, they can expand their market towards some Asian

country such as, China, India, Bangladesh and Pakistan etc. Because in UK where they

are mainly depends there are huge people from those country. It will help them to do

understand the demographic culture. That will be favorable to them to develop. And

those developing countries government will support them as it will help to solve their

unemployment problem as well as become global.

In addition, for entering a new market they should consider driving forces’ support i.e.

market research, market needs, global strategy and free market. As well as they should

consider restraining forces i.e. culture, war, market difference. They should consider

price of their product. Product price should according to the economy scale of that

particular country. As an example product price of a developing country should be low.

Moreover, though Tesco is doing corporate social responsibility very well, they need to

keep developing that. Further research will show what they should do. However, Tesco

needs to work to turn their weakness and threats to strength and opportunity. Further

research may help them to do it.

6. Conclusion:

Companies need to be very careful in the time of any decision making on market

research. Because business environment changing always any time it could be a

challenge to them. There are so many factors like macro or micro. This will affect the

business either directly or indirectly. Macro factors have indirect affect to the company

where companies may need to change their policy. Companies cannot avoid external

factors. But they need to adopt that situation to run their business smoothly. They can

identify them and evaluate their strategy to minimize the effect.

Today’s market is highly competitive; business always demands the inevitability of

applying concepts i.e. PESTLE, SWOT analysis, and Porter’s 5 Forces to build up

victorious strategy to become a strong competitor.


7. References:

1. Burlington: Elsevier Butterworth-Heinemann.

2. Balchin A. (1994) ‘Part-time workers in the multiple retail sector: small change from

employment protection legislation?’, Employee Relations, 16 (7), pp.43-57.

3. BBC ‘Tesco's apology over kitchen cloth found in bread’ November 2010.

http://www.bbc.co.uk/news/uk-wales-south-east-wales-11716229

[Accessed: 10th November 2010]

4. Bracknell News (2010) ‘Crime fears as Tesco store is granted longer licensing hours’

http://www.bracknellnews.co.uk/news/ascot/articles/2010/10/25/48964-crime-fears-as-

tesco-store-is-granted-longer-licencing-hours/


5. Business Strategies (no date) ‘What is a SWOT Analysis, How Do You Develop One?’

http://www.bizstrategies.biz/swot-analysis.html

Copyright © 2008 Biz Strategies, Inc. Template by XSiteProDesigns.com.


6. Campbell, D. and Craig, T. (2005) Organization and business environment. 2nd edn.

Burlington: Elsevier Butterworth-Heinemann.

7. Johnson, G., Scholes, K. and Whittington, R. (2009) Exploring Corporate Strategy.

8th edn. Harlow: Person Education Limited.

8. Tesco PLC, (2009) ‘Datamonitor: Business Source Premier’. Available at:

http://web.ebscohost.com.ergo.glam.ac.uk/ehost/pdf?vid=5&hid=106&sid=00d7149e-

66a0-40fe-b860-c62ec21fbad1%40sessionmgr102

[Accessed: 16th March 2009]

9. Tesco PLC (2010) ‘Annual Report’. Available at:

http://ar2010.tescoplc.com/~/media/Files/T/Tesco-Annual-Report

2009/Attachments/pdf/tesco-annualreport.pdf

[Accessed at: 13rd December 2010]

10. Tesco PLC (2010) ‘Corporate Responsibilities Report’. Available at:

http://cr2010.tescoplc.com/~/media/Files/T/Tesco-Corporate-Responsibility-Report-

2009/Tesco_CSR_2010.pdf


[Accessed at: 11th December 2010]

11. Tesco PLC (no date) ‘Talking Tesco: How we compete’. Available at:

http://www.tesco.com/talkingtesco/retailing/


12. Wolf, W. (2009) Fixing Global Finance. London: Yale University Press.

13. Worthington, I and Britton, C. (2009) The business environment. 6th edn. Harlow:

Pearson Education Limited.

7. References of Figures:

Figures References

Figure: 1. layers in the

environment

Lancaster, G. and Massingham, L. (1993) Marketing Management.

London: McGraw Hall.

Figure: 2. PESTLE

analysis



Figure: 3. Porter’s 5

forces

Porter, M.E. (1980) Competitive Strategy. New York: The Free

Press.

Figure: 4. SWOT

Analysis



Figure: 5. SWOT

Analysis

http://www.bizstrategies.biz/charts/swot-analysis.htmlCopyright © 2008 Biz Strategies, Inc. Template

by XSiteProDesigns.com.


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