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COLLEGE TECHNOLOGY LONDON

THE BUSINESS ENVIRONMENT

Report (Assignment)

Tesco An Analysis about the changing business environment over the last five years BY MAHESH POCHA STUDENT ID: 105470-88

Masters Entry Program (Group 3)

Contents Contents......................................................................................................................................2 Executive Summary...................................................................................................................3 Introduction................................................................................................................................4 Micro-Environment....................................................................................................................5 Customers...............................................................................................................................5 Suppliers.................................................................................................................................5 Intermediaries.........................................................................................................................5 Competitors............................................................................................................................5 Pressure groups......................................................................................................................6 Macro-Environment..................................................................................................................6 Political Factors......................................................................................................................7 Social and cultural Factors.....................................................................................................7 Technological factors.............................................................................................................8 Economic Factors...................................................................................................................8 Environmental Factors...........................................................................................................8 Legal Factors..........................................................................................................................8 SWOT Analysis..........................................................................................................................9 Company Overview....................................................................................................................9 Recommendations....................................................................................................................12 Conclusion................................................................................................................................12 References................................................................................................................................15

Executive Summary
This report will evaluate the changing business environment for an UK Multi-national retailer Tesco over the last 5 years. Effort will be made to identify and analyse the macro and micro environmental factors which have influenced the companys business environment. In order to do this we will be considering results obtained from various tools which are used to analyse a companys business environment. The primary tool would be PESTEL which analyses the Political, Economic, Social, Technological, Environmental and Legal factors which influence the business environment of any system. The secondary tool we will be using would be SWOT analysis.

Introduction
Business Environment can be discussed as the combination of all factors which can impact an organization. Customers, suppliers, employees, government, cultural factors and economy of the region in which the business is operating can be considered as some primary factors impacting a business environment. More often than not a lot of factors impacting the business are outside the scope of influence of the Business. The purpose of the study of a business environment is to make sure that the managers and decision makers in question can take informed decisions based on the changing business environment so that the impact can be minimized.

There are quite a few examples where a company has progressed because the business leaders have been aware of the changing business environment and created opportunities out of it. One example would be of the airline market where during the initial days of government deregulation a few carriers like Ryan air and Easy Jet started operating low cost carriers long before others. This opened up quite a few new channels where the customers were all new to flying altogether. This is a prime example of how a particular opportunity created by a changing business environment was spotted. It is also equally true for some instances that a changing business environment was not spotted by organizations or was not acted upon leading in a decline of the organizations. As an example we can consider the case of Marks & Spencer. The company did not take into account the changing market scenario where its competitors were providing more value for the customers money. This resulted in a huge number of loyal customers migrating over to their competitors (Palmer and Hartley, 2006). As is obvious from the above discussion, an understanding of Business Environment is very essential. The business environment can be classified into two different categories listed below Macro-Environment

Micro-Environment

Micro-Environment
According to Palmer and Hartley (2006) micro environment comprises of people and organizations which have impact on the organization and directly deal with the organization. Such as: o Customers o Suppliers o Intermediaries o Competitors o Pressure groups

Customers
According to Palmer and Hartley (2006) the changes in markets mean that customers no longer mean just the people who buy the products, but includes a lot of other parties such as influencers, deciders and gatekeepers who have an impact on whether the product is being sold or not.

Suppliers
Suppliers are those people or organizations who provide the organization with raw material in terms of goods or services which are then processed by the organization to be sold to customers. They are very crucial to an organizations success, especially in cases where the raw materials are in short supply. (Palmer and Hartley, 2006).

Intermediaries
Large organizations usually are unable to deal with all of their customers directly; they tend to operate through channels of distribution which comprise of all people and organizations which act as a link between the organization and its customers. These are called as Intermediaries (Palmer and Hartley, 2006).

Competitors
In todays highly competitive markets it is very important to understand what the competitors strengths and weaknesses are if an organization wants to maintain or improve their market position. It is also agreed upon that the most competition present is from direct competitors who satisfy a similar need in a similar form. The uncommon but the more

impacting are indirect competitors who appear different to the organization but satisfy a fundamentally similar need.

Pressure groups
Members of pressure groups may never be directly or indirectly related to the organization either by being customers or suppliers but they can have an adverse effect on the image which the organization has worked hard to develop (Palmer and Hartley, 2006).

Macro-Environment
Macro-environment is sometimes also defined as external environment of an organization. All the external factors (outside the control of the organization) which impact the performance of an organization come under the macro environment. In order to analyze the different factors involved in the Macro-environment a tool called PESTEL is used. PESTEL stands for Political, Economic, Social, Technological, Environmental and Legal factors. The main function of the tool is to help managers understand and analyze how the different factors may impact the business. Each factor is not independent of the other when we are doing a PESTEL analysis of an organization, for example factors in environmental factors may lead to laws being created making them interrelated. An image describing the key factors in each of the categories is shown below:

Source : http://www.marketingminefield.co.uk/marketing-plan/pestle-analysis.html

Political Factors
According to Palmer and Hartley (2006) Governments are directly and indirectly responsible for shaping of the business environment for an organization. This can be through legislations, formulating policies, implementing constraints on activities in the general public interest, stability of the political system, implementation of trading blocks and the formation of worldwide inter governmental organizations.

Social and cultural Factors


According to Palmer and Hartley (2006) cultural factors are those values which are passed down from parents to children and so on. An organization has to be able to predict the changes in consumer values, attitudes and lifestyles as this can seriously impact the sales of the organization. For example with the rising concern about environment a lot of companies

moved towards green consumer products and those who did not lost out on their market shares and subsequently faced losses. Perhaps this is the reason why Lancaster (2008) believes that Social and cultural factors are the most difficult to analyse since it is related to behavioural changes in religion, attitudes and lifestyle. It has to be kept in mind that in most of the cases this is a very gradual change.

Technological factors
In the recent decades the rate at which technology is changing has drastically increased. Managers need to keep in touch with what changes are happening and should be on the lookout for the changes which can improve their processes or improve the customer experience. Such a change in technology which will reduce the manufacturing costs and in turn reduce the pricing for the consumers, any such scenarios benefit those companies which implement it first since a lot of customers will move towards the first company to implement a change like that. (Palmer and Hartley, 2006).

Economic Factors
According to Palmer and Hartley (2006) an organization needs to be on lookout for the nations prosperity since this is an indicator of the buying capabilities and spending patterns of consumers. This directly impacts the organizations prosperity. It has been observed that in an average economic cycle people spend more in boom period and less during the recessionary period.

Environmental Factors
According to both Worthington and Britton (2009) and Palmer and Hartley (2006) in the last few decades there has been a significant increase in the way masses are reacting to the environmental factors. This has led to customers moving their business to environment friendly companies and the governments are also passing more laws to ensure the environment is taken care of in addition to popular attitudes towards the environment.

Legal Factors
This is a factor which is closely related to the political factors as policies and laws are made by governments. An organization has to keep itself updated about the changing laws governing how the company deals with the suppliers, consumers and competitors. According to Palmer and Hartley (2006) laws not just restrict an organization from doing certain things,

but also help them achieve its objectives by being directive about how functions need to be performed by the organization.

SWOT Analysis
SWOT is abbreviation for Strengths, weaknesses, opportunities and threats. It is a tool which is used by most companies and managers to analyze an organizations situation categorizing them into strengths and weaknesses based on the type of environment in question which are internal and external (Brooks and Weatherson, 2000). The image below showcases how the SWOT analysis can help a company take proper strategic decisions.

Source: http://www.businessteacher.org.uk/business-operations/swot-analysis/

Company Overview
Tesco is Britains leading retailer. It is one of the top three retailers in the world, operating over 3,700 stores globally and employing over 440,000 people. The first Tesco store was started in 1929 in Edgware. Tesco operates in 13 countries outside the UK Republic of Ireland, Hungary, Czech Republic, Slovakia, Turkey and Poland in Europe; China, Japan, Malaysia, South Korea, Thailand and India in Asia, and the U.S. (www.cn.tesco.com, 2010) Tesco has always faced opposition from various associations within UK for a long time now. The main reason for this can be attributed to the fact that Tesco seems to be dominating the market with its low prices and huge number of outlets. Association of Convenience Stores was most vocal against Tesco claiming that it was using anti-competitive strategies

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while conducting business. In fact in 1997, there was an investigation done by Competition commission into the food retail industry where the focus was to find if any retailers were using unhealthy practices. The main reason seems to be that Tescos share of Grocery market in UK seemed to be 31.4% which is more than double the share of its nearest competitor ASDA. The result of the investigation said that the choice in some areas is being limited because of the non availability of competition from other sources but that they were unable to uncover any serious problems in the retail industry. The concern that came to the fore front was that the land bank of Tesco was very high compared to the industry and as such could be reason enough for Tesco to not allow any competition to grow in the near future when the other stores want to expand into different regions. (Fiona Walsh, 2010) Tesco though has largely been un impacted by the competition commissions final report and has welcomed the commissions report and said that it is not hoarding land as claimed by some groups. According to Tesco it has been able to successfully able to expand because of its flexible and multi-format approach to its new shop floor development. In spite of all the comments and allegations against Tesco it has been expanding the stores across UK. (Tesco.com, 2010) In fact the amount of opposition faced by Tesco can be seen by the fact that there is a website solely for acting as a forum for showcasing the impact of Tesco on different stake holders of the market like farmers, workers, environment, animal welfare etc. It can be accessed at the link www.tescopoly.org . Given the size of its operations globally and the pricing offered to customers. Tesco has had its fair share of political factors impacting its operations when expanding or opening stores in various countries around the world. It has inevitably faced criticism from political activists and environmental groups. Because the size of operations even in a new country Tesco has moved into, there have always been loud voices about the competition threat present due to the entry of Tesco into the market. Critics insist that the expansion of big stores like Tesco is making smaller and local stores to wind up since they cannot actually compete with big brands. The argument is that not a lot of local and small stores can compete with the amount and size of resources available to a store like Tesco. Then there is the concern by many that Tesco has been taking advantage of weaker regulations applicable in developing countries, since Tesco has been in a lot of developing

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economies. As such Tesco faces constant observation of regulatory authorities in these countries. On the social and cultural impact of going into a different country seems to be being handled properly by Tesco. One of the main pointers being that Tesco is not really insistent on using their brand everywhere they go. For example in Turkey local populace recognize Kipa so the Tesco stores there are known by that name. According to the company they only use the Tesco brand if it gives advantage in the market they are operating. Tesco has been quick to adapt the store formats of the companies they are operating in and work well with the local management making it easy to drive its employees to operate well. In addition to the local strengths adapted Tesco is using its global supply chain and retail expertise in acquiring and stocking goods in stores. (Gavin Stamp, 2006). Tesco was one of the first companies in the retail industry of UK to offer online services to customers. They were able to see an opportunity with the changing business environment and cashed on it. The first website for Tesco online shopping was launched in 1999 and there on it was an upward hill task. Majority of the system Tesco uses today has been grown organically keeping in view the market they were tensing to and not copying off the shelf products. Today Tesco is in the process of launching mobile Apps for Nokia and Apple phones so that customers can easily shop from their phones. The application of new technology has also been extensive in stock keeping and store management. Tesco is in the process of introducing handheld devices for its home shopping executives which point out where a particular item is available in a store. ( Dawinderpal Sahota, 2010). So it can be said with conviction that the company has been successful in analyzing the changes in business environment in regards to the technological factors and has hugely benefitted from it by taking proper measures. The company has been active in trying to handle the changing business environment in regards to public sentiments towards environmental issues. It has been active in trying to achieve the title of Green Grocer by taking several initiatives like reducing the amount of carbon footprint in the stores and moving towards more organic products. There are also plans to reduce air freight of its goods and having an airplane symbol on all products which have been brought through air cargo so that customers can make more informed decisions. (www.tesco.com , 2010)

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Recommendations
Tescos major challenge is that size of the company paints a huge target for any pressure groups or associations to say that Tesco is responsible for anything. Involvement in some major community services may be helpful in reclaiming the image. Right now the general consensus seems to be that the company is minting money by High Hammering its way into the markets and driving other small businesses and suppliers out of the market. Though this may necessarily not be true, one cannot disagree that the company has not been successful in managing a positive PR in such issues. The same is again not true for scenarios where the companies customers are concerned. It is a generally accepted fact that the company provides quality services at a very affordable price.

Conclusion
An organizations business environment impacts the organizations performance directly. When dealing with business environment of an organization one has to take into consideration both the micro and macro environment of the organization. A lot of factors impact the micro and macro environment of the organization directly and/or indirectly. During the scope of dealing with an organizations business environment more often than not, organizations find themselves dealing with factors which cannot be influenced by the organization. The only way to deal with the factors falling outside the scope of influence for the organization is to be able to learn early about the factors and implement changes which can help the organization deal with the changing business environment (both to minimize the impact and improve the business). Analyzing the business environment can be done by using a lot of tools, the most common ones being PESTEL, SWOT and porters five forces. Using these tools help managers organize and analyze the opportunities and negative impacts which may have an effect on the organization. Tesco has been able to read the changing business environment and has been able to provide effective changes in the business plans of the company accordingly. The company has faced numerous challenges in the course of its evolution but has been able to tackle them and has been able to grab a majority of the market share and is now able to sustain that market share. It has utilized the different factors impacting the business environment and become a leader in terms of market shares.

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Everyday challenges arising now seem to be handled with proper responses from the company. Though the future by no stretch seems to be smooth for the company but the company has a strong foundation to fight these challenges.

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References
1. Palmer, A and Harley, B. 2009, The Business environment, 5th edition, Berkshire, McGraw Higher Education. 2. Worthington, I and Britton, C. 2009, The business environment, 6th edition, Harlow, Pearson Education Limited. 3. Brooks, I and Weatherston, J. 2000, The Business Environment: Challenges and changes, 2d edition, Harlow, Pearson Education Limited. 4. Campbell, D and Craig, T. 2005, Organisation and business environment, 2d edition, Burlington, Elsevier Butterworth-Heinemann. 5. Johnson, G and Scholes, K and Whittington, R. 2009, Exploring Corporate Strategy, 8th edition, Harlow, Person Education Limited. 6. http://www.cn.tesco.com/en/aboutus/aboutus_history.htm [Accessed: 11th December 2010]. 7. Fiona Walsh ,'Commission puts Tesco in the spotlight', The Guardian. 23 January 2007. [Online]. Available at: http://www.guardian.co.uk/business/2007/jan/23/supermarkets.tesco [Accessed: 11th December 2010] 8. http://www.tesco.com/talkingtesco/stores/?page=article5 [Accessed: 11th December 2010] 9. Gavin Stamp ,'Commission puts Tesco in the spotlight', The BBC News Channel. 25 April 2006. [Online]. Available at: http://news.bbc.co.uk/1/hi/business/4781458.stm [Accessed: 11th December 2010] 10. Dawinderpal Sahota (2010) Interview: Nick Lansley, head of R&D, Tesco.com http://www.computing.co.uk/ctg/interview/1898196/interview-nick-lansley-head-tescocom? WT.rss_f=Software&WT.rss_a=Interview:+Nick+Lansley,+head+of+R%26D,+Tesco.com [Accessed: 11th December 2010] 11. http://www.tesco.com/climatechange/ [Accessed: 11th December 2010]