A Report on the Impact of Business Environment on Tesco

Published by James Taylor

Introduction

Tesco is a multinational food retailing company that has store outlets in more than 12 countries around the world. The multinational food company is headquartered in the United Kingdom (Tesco and Society Report, 2013). The company is ranked as the second largest retailer in terms of revenues and profit made after Wal-Mart. Precisely, the company is known to offer food and non-food products; however, it has extended its services and now it also provides hardware services, insurance, finance and mobile services.

Tesco serves as a leader on the international level and; therefore, the company is fully engaging in environmental performance. Similarly, the company assumes corporate social responsibility in its activities (Tesco and Society Report, 2013). Tesco is still living up to its famous slogan, “every little helps” and add it to the company’s main goals that include customer satisfaction and maintaining a healthy relationship with the stakeholders (Tesco and Society Report, 2013). Other company’s essentials include supporting the local community, trade responsibly and reduce their impact on the environment and being a great employer. In this report, we shall discuss the effect of business environment on Tesco and how the company has responded or continued to respond to the environmental changes.

Business Organization and Environment

A business environment encompasses both the external and internal factors that affect the day to day operations of a business (Fernando, 2011). It is also possible that the internal and external factors influence one another and eventually work together to impact the business. Moreover, some of the external factors are beyond the control of the company or organization. For example, the political factors, geographical features, and technological changes (Fernando, 2011). The company has the role to try and relate to the different environment and how they affect the organization. The two main categories of the environment are the controllable and non-controllable environment. Besides, the company should consider how it relates to the environment because when it alters any environment, it will result in a counter effect on the other.

Controllable Environment

It entails the major make-up of the organization hence they are the reason for the existence of the business. Without these attributes, the company will be dormant to all its activities (Fernando, 2011). The controllable environment includes labor, raw materials, capital, equipment, and entrepreneurs. Such an environment can be controlled since the company decides on the quantity to be used depending on the availability of resources. First, raw materials are the physical resources or pieces that are supplied to the manufacture so that the company can produce the end product (Fernando, 2011). They are very essential, and the Tesco can dictate the amount it requires depending on the cost and availability.

Second, labor entails the human resources (actual workers) who have been hired by Tesco to provide physical or intellectual assistance to the day to day operations of the organization. The company’s human resources should have adequate knowledge and skills to carry out the operations that will benefit the company in the future (Craig, & Campbell, 2012). The company uses third, equipment as machinery or devices and they help in converting raw materials to finish products ready for use by the consumers.

Fourth, capital refers to the monetary aid the company will use to achieve its objectives. It is the most critical attribute the company must have since it is the one that makes the other attributes functional. Ultimately, we have the entrepreneur. They are groups or individuals that are directly involved in the company’s activities since they take risks and invest to achieve the goals set (Craig, & Campbell, 2012).

The organization must ensure that it balances the above attributes and consider them equal for it to survive in the market competition. Therefore, Tesco has recognized this and put the strategies in place to ensure the attributes contributes accordingly.

Non-Controllable Environment

It provides an insight into the indirect attributes that impact the operations of the company. They are uncontrollable because it is impossible for the organization to change them, but this environment can alter the intermediate processes of the organization. Each attribute has a role in shaping the way Tesco must carry out its operations and the company cannot consider them equal since they differ in their magnitude of the effect. These attributes include the following.

Political factors

The country’s government usually enforces these factors. Therefore, these factors are critical for the operation of Tesco because various countries offer different political platforms. Similarly, since Tesco is a global retailing company, it must follow the rules and regulations of the markets in the host countries. The political factors include quotas, tariff and taxes, embargoes, the stability of the country, subsidies and patent rights over the use of certain technology (Kew, & Stredwick, 2005). They are all decided by the government of the host country; therefore, Tesco always ensures that it works hand in hand with the relevant authorities to achieve its goal to capturing the target market.

At the moment, many countries are undergoing financial instability, their government have opted to encourage all retailers operating in the country to create jobs for the local population. It is a challenge to Tesco, and for it to be successful in such countries, it must create employment opportunities and this, in turn, will increase the demand for their products and the diversity of the workforce (Tesco and Society Report, 2013). China has the world’s profitable markets, and its inclusion in the World Trade Organization has enhanced the free flow of foreign traders. Similarly, China’s removal of trade barriers encouraged Tesco to move into the market that consist of more than 1.3 billion people (Tesco and Society Report, 2013). Also, many countries have joined the European Union (EU), and this has boosted trade between Eastern European countries and the Western. Therefore, such a move encouraged Tesco to expand its business network.

Economic factors

Tesco is much concerned with the economic factors since they directly impact the purchasing behaviors of the consumers. Moreover, the economic system controls what to produce and how the products should be produced (Craig, & Campbell, 2012). International trade is important for Tesco since the company is one of the largest producer and suppliers of food and non-food products. On the other hand, Tesco is concerned with the host country’s inflation rates, exchange rates, the type of economic system used and the level of employment (Tesco and Society Report, 2013). They are equally important for the company’s plans and financial safety.

In the year 2008, the UK economy was officially declared to experience a recession. However, the government intervened by reducing the rates of interest charged by the financial institutions. The action helped minimize the rise in unemployment and increased the consumers’ aggregate demand for the products. They also gained confidence about their financial status hence increasing the spending power. Moreover, in other countries that Tesco operates, they still experience financial uncertainty. In such scenario, consumers are most likely to reduce their spending on premium products that consist of organic and ready-made food. This will affect the company’s total sales and revenue.

On the positive side, during a recession, consumers will eat less when they are outside, but they will tend to eat more when they are at home (Craig, & Campbell, 2012). Therefore, since Tesco is a global grocery retailer, recession provide it with an opportunity to increase their output. Also, it is important to understand that food is the last item that consumers will cut back.

Similarly, changes in policies such as taxation could affect the company’s ability to access finance. However, although Tesco has expanded globally, it is still dependent on the UK market because of its large shares. Over the course of its operations, Tesco has pursued two important strategies that include internationalization and diversification. Most countries have endured a decline in both disposable and household income, and this made Tesco adjust its strategies and focus on advertising the product’s brands than concentrating on luxurious products.

Social factors

It primarily entails how Tesco blends in with societal components that include culture, lifestyle, and social class, demographic and sociological factors (Hamilton, & Webster, 2015). It is important for the company to develop a demographic profile of its customer base so that it could be easier for it to understand what motivates them. Tesco operates well in countries with different culture and social class because the company always offers products that satisfy most consumers despite their difference in religion, ethnic origin, income level, and race.

The recent research about the UK population indicates that the number of retired population is more than that of the children. Because of the high number of the aging population, the food retailers such as Tesco are discouraged since old people tend to consume less. Similarly, they do not frequently visit the supermarkets compared to the younger population. Therefore, this is a big blow to the Tesco and other food retailing companies. Moreover, the study concluded that the internet literacy level for individuals over the age of 65 years has dropped (Hamilton, & Webster, 2015). Nevertheless, policy makers have predicted that online shopping would be more convenient to the aging population. But according to the policies and strategies of Tesco, delivering small quantities would be ineffective and expensive o the company.

Besides, the various social changes trends show that consumers prefer and have moved to bulk shopping and one-stop shopping. The company responded to such an action by the customers by increasing the number of non-food items offered. Consumers’ attitudes and beliefs mostly drive their demand for goods and services. Precisely, customers have become more health conscious and hence their attitude towards food has changed constantly. Tesco has accommodated and increased the demand for organic food so as to adapt to these changes in demand.

Technological factors

These are innovations that companies use to promote their business. Similarly, it entails the rate at which technology advances. However, technological changes can either benefit or hurt your company (Fernando, 2011). Developing and keeping up to date with the changes in technology helps the company to participate competitively and take advantage of the market. Technology has directly impacted the supply chain and processes of grocery and food companies (Fernando, 2011). Therefore, it is the predominant medium by which the companies get their operations done. Also, in terms of food and non-food products, technology defines the way companies operate.

The use of technology by Tesco does not only shape culture but also it brings changes to certain aspects in the organization. For example, the company may need to upgrade its equipment to enhance the manufacturing of the finished products (Oshri, & Kotlarsky, 2010). The success of Tesco as a food retailer depends on constant improvement in technology. The two new opportunities Tesco brought due to the advancement in technology include the following. The company developed and introduced online shopping. In the past years, internet subscription by the consumers has increased by approximately 50%. Also, more than 70% of the UK population are using the internet. Therefore, the online shopping introduced by Tesco facilitates home deliveries, and this has encouraged more customers to purchase products through the internet (Tesco and Society Report, 2013).

Second, the company employed self-service checkout points. The new opportunity provided customers with convenience and ease and also the company benefited by a reduction in the labor cost (Oshri, & Kotlarsky, 2010). Moreover, other technological plans introduced by the company are loyalty programs and mobile applications. The company’s information technology department introduced loyalty programs, and it has helped the company since it discourages loyal customers from switching their services to the competitors.

Tesco uses the mobile technology within its food retailing. For example, the company uses New Wine Application to direct the customers to Tesco Wine and from there they can purchase the selected wine from their tablets or mobile phones (Hamilton, & Webster, 2015). Ultimately, Tesco has taken advantage of technology and invested its resources in energy efficiency projects. The company invests in such projects to fulfill its long-term goal of reducing the amount of carbon footprints.

Environmental factors

All governments have raised their concern on environmental matters. They request and put pressure on companies to be environmental friendly and reduce their packaging. Similarly, consumers’ concern on environment is a factor that determines their buying behavior (Kew, & Stredwick, 2005). The geographical features of the environment explain the influence of Mother Nature. Features such as landscape, weather, climate and natural disasters of a host country impact the operations of any organization (Hamilton, & Webster, 2015). Such an environment influence the potential sites to put a business. Therefore, serious companies and individuals with businesses should consider minimizing the effect of the environment to their operations. A company like Tesco is very innovative in how they design their products to overcome the influence of geographical features. The company has added hydrophobic materials to the packaging of their products and also bags with high melting to withstand he harsh conditions of the country.

In addition, Tesco has addressed environmental issues by reducing the amount of carbon footprint. Also, the company is committed to using scarce resources in their supply and be a zero-carbon business by the year 2050 (Tesco and Society Report, 2013). The company has gone far and addressed consumer awareness on the firm’s carbon footprint by adding data about carbon footprint on items such as potatoes, orange juice, dairy products, bread and other non-food products. The pressure from the government and the numerous campaigns from Tesco has resulted to the percentage of people using reusable bags increase from 71% to 74%. Also, the number of consumers who prefer not to use plastic bags to deliver their products has also risen from 65% to 68% (Tesco and Society Report, 2013). These improvements have promoted the company’s corporate social responsibility image and also reduced its overall production cost.

The company provides customers with rewards through their program called Green Clubcard points. Customers will only get the points when they request bagless deliveries, reuse bags, recycle aluminum cans and mobile phones (Tesco and Society Report, 2013). It also operates a scheme called Green Living. Through the scheme, Tesco offers pieces of advice to their customers on environmental issues that include ways to reduce food wastage and also the amount of carbon footprint when they prepare meals.

Legislative factors

Organizations and other businesses operate under the guidance of legal obligations and restrictions. Some of the legal factors deal with the health and safety of the consumers while others relate to environmental management, consumer protection law and import and export restrictions (Craig, & Campbell, 2012). The policies and legislations set by the government directly impact the operations of Tesco. In 2004, the Food Retailing Commission recommended the introduction of a code of practice. The legislation was to ban certain practices exercised by companies that include changing the prices of goods and services without giving notice. Also, the code of practice was to ban companies from requesting for payments from suppliers. The policies forced Tesco to offer its customers price reduction on various products such as fuel in accordance with the amount of purchase in the retail outlets. Some countries predicted an increase in VAT since the government would like to finance their huge budget deficit. Such actions would affect Tesco’s non-food sectors.

Competitors

When companies face competition, they tend to deliver quality goods and services to the consumers (Harrison, 2013). First, Tesco faces a threat of substitute products and services. The grocery retail market that deals with food items faces a minimal threat to substitutes; however, those that deal with non-food items face medium to high threats. Some of the retailers in the grocery market that tend to offer substitute products are small organic shops and other convenience stores that are not seen as a bigger threat by Tesco. It is because Tesco offers quality products and also at lower prices. Besides, Tesco responded to such competition by opening more Express store branches in city centers and local towns around to make consumers’ life convenient. Therefore, this creates a barrier for the substitute products to penetrate into the market. On the other hand, the company also faces a high treat on non-food items. Since the competition in the market with specialty shops is extremely high, Tesco has discounted most of its products such as clothing to attract more customers.

Second, Tesco faces a threat of entry of new competitors. Many firms have come up and joined the grocery retailing market to benefit from the vast number of populations around. Companies know that individuals would not survive without food; therefore, they tend to penetrate the market and enjoy the profits. Although the food retailing markets require large capital for investments and establish a brand name, this has not prevented companies from operating. Some of the brands apart from Tesco that have established themselves in the market include Asda, Wal-Mart, Sainsbury, and Morrisons. Therefore, from the research carried out, threats from new firms is considerably low since they have to offer something that the other firms cannot offer to the customers. For example, new firms should offer low prices and high-quality goods and services (Fernando, 2011).

Third, Tesco faces a high intensity of competitive rivalry. Companies such as Morrisons, Asda, Walmart, Whole Food, Waitrose and Sainsbury’s offer extremely high and direct competition in the food and grocery retail industry. These companies compete for prices, promotions and the types of products offered. Some companies such as Asda and Morrisons have increased their market share in the recent years. The slow market growth accompanied by increased market shares have intensified the competition and market rivalry. Therefore, this is a big threat to the market leadership position of Tesco. Similarly, major stores are limited and distance away in rural areas; therefore, consumers would be attracted to small retail shop such as Somerfield.

Fourth, the company is affected by the high bargaining power of buyers. Products that have slight differentiation and more standardized offer low switching cost. Therefore, there is a high chance that buyers will switch from one brand to another, and this will affect the sales and revenue generated. Also, most consumers are attracted to buy a particular product when the prices offered are low. The availability of online retail shopping has enabled the consumers to compare and select products they think suits them and have lower prices. The strategy the company will employ in such situation is to offer high-quality products and also low prices on products that are essential to customers.

Lastly, the bargaining power of the suppliers of raw materials and other essential inputs have had an impact to Tesco as food and non-food retailing industry. Suppliers would like to work for major food and grocery retailers. Also, they mostly fear to lose their business contract with leading supermarkets. Therefore, Tesco being one of the largest multinational food retailing company offers a strong and positive negotiation with the suppliers. The positive feedback from the negotiation implies that they will get a lower price from the suppliers.

Besides having a competitive environment, Tesco still manages to attain the leading position in the market. The company has invested more in research and development and promoted a healthy relationship with the customers. Therefore, the strategies employed by the company has helped it manage and provide the best and trusted brand name.

Stakeholders

They are individuals, groups or organizations who have shown concern in a business (Hamilton, & Webster, 2015). However, they are mostly affected either directly or indirectly by the objectives, actions, and policies employed by the organizations. In the world of business, the government and entrepreneurs are also considered as stakeholders. Employees who make up the human resource are also stakeholders of the organization since they can influence the actions of the organization (Oshri, & Kotlarsky, 2010). Also, the company’s actions or policies affect their relationship with the company. Tesco’s tasks and duties require the services and different skills from employees. Tesco has continuously learned and approved the skills and knowledge from their employees hence harvesting the best outcome from their stakeholders.

The second group of stakeholders is the community. The community as a whole is pictured as everyone in one place. Moreover, the community covers a larger sections of the population, and it includes individuals and factors that affect them. The community could be potential customers and employees who can successfully help the company. Besides, without the presence of the community, there would be no existence of the business. Therefore, Tesco has the responsibility to connect with the different communities across the world and ensure that its influence on them is a positive contribution.

The company’s current strategy concerns with two major areas and they include the following. Tesco is making use of online shopping to reach out to everyone in the community and stimulate their desire to shop online using their mobile applications. Therefore, the strategy has helped the company to bridge the gap Tesco and the communities. Similarly, Tesco signed an agreement with ITV so that it could screen some of the company’s popular and classic dramas that include Cold Feet and Hells Kitchen on the company’s Clubcard TV platform (Tesco and Society Report, 2013). The TV shows are supported by advertisements that promote the consumer’s shopping habits. The company has moved close to the community through the TV shows and also it has helped them learn more or change their shopping habit.

Third, suppliers as company’s stakeholders ensure that they provide the necessary raw materials to the company hence contributing greatly to the success and growth of the company. For years, Tesco has managed to control its bargaining power with the various suppliers and maintain a healthy and mutual relationship with them. The continuous healthy relationship with the suppliers gave an opportunity to the company to improve on their inputs and environmental performance. Most importantly, Tesco signed a global supplier requirement. The requirement included ethical considerations when operating a business. Similarly, the agreement applies both to direct and indirect suppliers.

Fourth, customers have a greater influence on the organization and also the organization may affect them in various ways. One of Tesco’s objective is to maintain a strong customer recognition since they determine the success of the company. Similarly, customers are free to choose what they prefer to buy and from which company (Kew, & Stredwick, 2005). It is the responsibility of the company to provide customers with quality products that will satisfy their needs. Also, they have to trade with the clients responsibly. The company has paid much attention to product design to attract and appeal their customers.

Ultimately, all environments have a greater impact; hence, they are essential to the company. However, for food retailing company like Tesco, technological change is the most significant and; therefore, the company should carefully integrate it into the business. Technology changes every time and at a higher rate. The company needs to have strategies to help it prosper in the future. It will be to the interest of the company if it evolves their hit goods and services.

Changing Nature of Tesco

Tesco is categorized as a public limited company that trades the company’s shares to the public. Besides, Tesco is owned by a group of individuals with numerous shareholders. The shareholders contribute a large amount of capital to the company. In addition, the company is avoiding too many shareholders since they may result in a weak control of the business operations. The company’s system of operation is an open one to allow it to interact with the environment responsibly. Tesco has kept a close relationship with the employees, motivated them and ensured they are satisfied with the way the management behave with them. Therefore, this has increased the production of the company.

Tesco’s reason for existence is to create opportunities, reduce food wastage and improve the health and safety of both consumers and employees across the world (Tesco and Society Report, 2013). As a global retailer, the company creates opportunities such as employment and also improving the growth of suppliers. It has tackled the global obesity crisis through health improvement. The company work hand-in-hand with the producers and suppliers and serve the customers to ensure that no food goes to waste (Tesco and Society Report, 2013). On a further note, the business environment changes from time to time just like technology. Therefore, Tesco needs to forecast the company’s plans and become flexible to withstand the changes. Employees and technology bring change to the organization due to their significant roles. Tesco has invested much in research and development hence making it operate well as a multinational food retailing company. Through research and development, the company has managed to neutralize the pressure of change. Similarly, the company has adapted to change hence stabilizing its operations.

References

Craig, T., & Campbell, D. (2012). Organisations and the business environment. Routledge.

Fernando, A. C. (2011). Business environment. New Delhi: Pearson.

Harrison, A. (2013). Business environment in a global context. Oxford University Press.

Hamilton, L., & Webster, P. (2015). The international business environment. Oxford University Press.

Kew, J., & Stredwick, J. (2005). Business environment: managing in a strategic context. CIPD Publishing.

Oshri, I., & Kotlarsky, J. (2010). Global Sourcing of Information Technology and Business Processes: 4th International Workshop, Global Sourcing 2010, Zermatt, Switzerland, March 22-25, 2010, Revised Selected Papers (Vol. 55). Springer Science & Business Media.

Tesco and Society Report. (2013). What matters now: using our scale of good. Retrieved from http://www.tescoplc.com/files/pdf/reports/tesco_and_society_2013_ipad.pdf

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