Business Environment Report

College of Technology London
An analysis of the changing business environment over the last five years on Tesco
Report (Assignment)
Lecturer: Georgio Georgiades
Student: Mohammad Azad Hossain Student ID: 103428-78 Submission Date: 17 Dec 2010
2010 An analysis of the changing business environment over the last five years on Tesco
CONTENTS
1. 2. 3.
Synopsis .................................................................................................................. 3 Introduction .......................................................................................................................... 3 Discussion .............................................................................................................................. 4 3.1. 3.2. 3.3. 3.4. Macro-Environment ........................................................................................ 4 Micro-Environment .......................................................................................... 7 Porter s 5 Forces ................................................................................................ 7 SWOT Analysis .................................................................................................... 9
4. 5. 6. 7. 8.
Company Overview .......................................................................................................... 11 Recommendation ............................................................................................................. 14 Conclusion ........................................................................................................................... 14 Reference ............................................................................................................................. 15 Reference of figure .......................................................................................................... 16
Student ID: 103428-78
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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 Porters 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).
Student ID: 103428-78 Page 3
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.
Macro-Environment
Technological Political/ legal
Micro-Environment
Suppliers Customers
Intra-firm Environment
Production Physical Level:3 Competitors Level:2 Level: 1 Personal R&D Customer
Marketing Function
Public
Economic
External Marketing service
Distributors
Demographic
Socio-Cultural
Figure: 1. layers in the environment Adopted from: Lancaster, G. and Massingham, L. (1993).
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3.1a. Political:
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 peoples 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 days, 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 dont need to wait for long queue. Theyve started online shopping system such as, Tesco.com.
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3.1e. Legal:
According to Worthington and Britton (2009) Government sometimes, law changes for customers 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).
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2010 An analysis of the changing business environment over the last five years on Tesco Economical factors Increase in growth rate Large market value
y y
Political factors Government enforce Government polices
y y
Social factors y Charity y Social care
Technological factors y Innovation motive y Advanced technology
Environmental factors y Stakeholders y Green issues
y y
Legal factors Legal restriction Consumer right
Figure: 2. PESTLE analysis Adopted from: Lancaster, G. and Massingham, L. (1993).
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 Porters 5 Forces are closely related each other. So this report will discuss Porters model briefly and evaluate idea for Tesco.
3.3. Porters 5 Forces:

These tools are mainly use to analyze competitive business environment and to understand the changes on business environment.
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3.3a. Competitive revelry:

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 cant bargain with them. And this way they are able to face challenge competitor.
New Entrants Threats of new Entrants Bargaining Power of Distributors Suppliers Intensity of Revelry Threat of Substitutes Substitutes Industrial Competitors
Bargaining Power of Buyers
Buyers
Figure: 3. Porters 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 competitors weakness. Tesco has good strength in market. In competition with ASDA and Sainsburys, 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 UKs largest supermarket with more than 29% of market share on the other hand ASDA got about 15% in UK (Datamonitor Tesco PLC, 2009).
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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 Sainsburys 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).
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Internal Strength y y y Sales Growth Strong Brand Competitive advantage External Opportunities y y New product New market y y Tax Wages Threat y y Weakness Depends on UK market Low inventory Ratio.
y Other super Market External
Figure: 5. SWOT Analysis Adopted from: Lancaster, G. and Massingham, L. (1993).
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 Britains 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 Sainsburys and ASDA, Wal-Mart and Carrefour for international.
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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 Britains 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 (Talking Tesco, no date).
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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 UKs 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 (Talking Tesco, no date). 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).
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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 reporters 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. Todays market is highly competitive; business always demands the inevitability of applying concepts i.e. PESTLE, SWOT analysis, and Porters 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-astesco-store-is-granted-longer-licencing-hours/ [Accessed: 10th November 2010] 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. [Accessed: 10th November 2010] 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=00d7149e66a0-40fe-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-Report2009/Tesco_CSR_2010.pdf
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[Accessed at: 11th December 2010] 11. Tesco PLC (no date) Talking Tesco: How we compete. Available at: http://www.tesco.com/talkingtesco/retailing/ [Accessed: 30th November 2010] 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 Figure: 1. layers in the environment Figure: 2. PESTLE analysis Figure: 3. Porters 5 forces Figure: 4. SWOT Analysis Figure: 5. SWOT Analysis References Lancaster, G. and Massingham, L. (1993) Marketing Management. London: McGraw Hall. Lancaster, G. and Massingham, L. (1993) Marketing Management. London: McGraw Hall. Porter, M.E. (1980) Competitive Strategy. New York: The Free Press. Lancaster, G. and Massingham, L. (1993) Marketing Management. London: McGraw Hall. http://www.bizstrategies.biz/charts/swot-analysis.html Copyright 2008 Biz Strategies, Inc. Template by XSiteProDesigns.com.
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College of Technology London

Student ID: 103428-78

External Marketing service

Student ID: 103428-78

3.1c. Socio - Cultural:

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Political factors Government enforce Government polices

Social factors y Charity y Social care

Technological factors y Innovation motive y Advanced technology

Environmental factors y Stakeholders y Green issues

Legal factors Legal restriction Consumer right

Figure: 2. PESTLE analysis Adopted from: Lancaster, G. and Massingham, L. (1993).

3.3. Porters 5 Forces:

Student ID: 103428-78

3.3a. Competitive revelry:

3.3b. Bargaining Power of Customer:

3.3c. Bargaining power of suppliers:

Figure: 3. Porters 5 Forces Adopted from: Porter M.E. (1980).

3.3d. Barrier to new entry:

3.3e. Threat of Substitutes:

3.4. SWOT Analysis:

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Student ID: 103428-78

y Other super Market External

Figure: 5. SWOT Analysis Adopted from: Lancaster, G. and Massingham, L. (1993).

Student ID: 103428-78

Student ID: 103428-78

Student ID: 103428-78

Student ID: 103428-78

Student ID: 103428-78

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