The analysis of business environment of TESCO - Essay Example

?Business Environment Table of Contents Table of Contents 2 Task The mission, objectives and responsibilities of an organization 4 Mission and objective of the TESCO 4 Stakeholder Analysis 5 Social Responsibilities by TESCO 6 Task 2 – The economic, social and global environment 7 Emerging economy; advantages and disadvantages compared to a command economy? 7 Current economic climate in UK using business cycle model and steps taken by UK government to influence the economic climate 9 Explain how your own country balances its policy requirements for social welfare with those for industrial and trade development 10 Task 3 – The behaviour of organizations and the market environment 11 Identify and critically evaluate the effectives of the barriers to new entrants wanting to compete in the industry? 11 Define the meaning of perfect competition. To what extent does your chosen industry’s structure fit with your definition? 13 Identify three regulatory mechanisms that are in force. How is compliance monitored? 14 Bibliography 16 Task 1 – The mission, objectives and responsibilities of an organization Mission and objective of the TESCO Tesco, the global merchandise as well as grocery retailer is one of the constituents of the FTSE 100.Following the leader Wal-Mart, Tesco is the second largest retailer of the world in respect of profit and by revenue it stands third after Wal-Mart and Carrefour. Being one of the leader the vision of the firm depicts the goal of the company i.e. what exactly Tesco wants to achieve in the long run and to which direction the company is growing its business. The mission is the area to which the company wants to operate their businesses and the target customer for the company to serve. The mission gives the idea to build their foundation stone on which the company device strategies and implement them (Nwagbara, 2011, p.62). The core and foremost value of Tesco is to take care of the people for whom the company serves i.e. their customers. The only value of the firm is to earn lifetime loyalty of the people of the society and create value for them (Nwagbara, 2011, p.62). The company has a strong belief that no one in the industry tries so harder as Tesco to reach out to their customer and serve them with their needs (Polytechnic Institute of New York University, 2011, p. 1). The socially responsible company always maintain healthy relationship with the neighbourhood and always trying to meet the demands of the customers and be the responsible member of the society. Great quality of product with wide range of products is the major advantage of Tesco to maintain its brand image in the market for its core competencies. Stakeholder Analysis Stakeholders are individuals or companies who has stake in the company. Investors are the main drivers of a business. Tesco with its well governed policies in business and its sustainable growth in the market gives confidence to the investors to get back competitive return for their investment on Tesco and their shareholdings. The transparency of the company is the major reason for building trust of the company amongst the shareholders. The shareholders also have the belief on the company that it will implement strategies for the long term development of the company keeping in the mind the interest of the shareholders. Blackrock Inc holds the major share of the company with its 5.48% of issued share capital followed by Legal & General Investment Management Limited with around 3.99 % share and 3.02 % of the total share by Berkshire (Tesco Annual Report and Financial Statements 2011, 2011, p. 58). By benefiting the stakeholders of the company like shareholders, staffs, customers and other related people the company maintains the high quality products and in turn increase the value of the firm. The company constantly meet the growing need of the customers with the wide range of product line and differentiate itself from the competitors in the market. The image building potential and loyalty towards the stakeholders facilitates the process of building strong relationship with the customers in the business which helps in long term growth of the company in the competitive environment. Strong relationship in the business increase long term profitability and sustainability of the company in the market. Stakeholder management is one of the crucial activities the company constantly take care of by maintaining the strong relationship with them. The company involve all the departments and arrange various programs to involve all the stakeholders and maintain the transparency within and outside the firm. Social Responsibilities by TESCO Corporate Social Responsibility policy primarily can be divided into four different categories. This can be referred as sustainability, human rights, labour and the governance and community engagement with the organization (World Growth, 2011, p. 2). The social responsibility program from Tesco has a great impact on the internal and the external environment of the company. All the employees along with the Tesco management contribute to different activities for different social responsibility programs benefiting the society and the environment in which the company operates their business. The company is also trying to extend the CSR approach to the suppliers in the business. The company was ranked 26th in the annual Business in the community. Amongst the UK firm, Tesco was ranked 1st in food and drug retail category for being the most responsible company (ICMR, n.d.). The company believes that CSR is the core and integral part of their business process and the framework facilitates the internal and the external activities of the company. Each and every regular activities of Tesco like focus on recycling, using organics, proper use of energy and water and charity towards the community reflects their social responsible activities on daily basis. The company understood the need to gain trust of customers for a sustainable growth in the market. Being responsible the company increase the benefit for the customers and in turn decrease the negative impact on the company. The company developed a committee for the purpose in the year 2001 which comprises of cross functional executives from the firm. Tesco understood that policies affecting the environment will also impact the image of the company in the market thus damage the customers and society of the operating market. The company supports the employees to take environmental initiatives to maintain healthy environment. Tesco’s energy awareness campaign in the year 1996 from Tesco involved all employees in Tesco stores to look carefully towards the energy use and increase efficiency with low waste through proper monitoring process. During the year 1997 to 2005 Tesco reduced its energy consumption to a great level of 35% and is expected to reduce it even farther in coming years (ICMR-a, n.d.). Various charity and fund raising activities of the firm for different causes and also promoting education system in the country by the employees of the company helped the company to gain its trust by showing their responsibility towards the society. The health food promotions all over the world influence the society to great extent. The company also shares 1 % of its profit to different charities in the form of donation or gifts from Tesco. The Charity Trust of Tesco provides about ?878,556 to local and domestic charities at UK. Supplying good at affordable price and providing employment in the country the company plays a major role in contribution of economic responsibility (ICMR-b, n.d.). Task 2 – The economic, social and global environment Emerging economy; advantages and disadvantages compared to a command economy? An emerging economy is those areas of the world that are experiencing growth very rapidly with the help of industrialization and various other frameworks. Many non-industrial nations worldwide are experiencing unparalleled economical growth in various sectors of the industry like energy, information technology, telecommunications etc. Indian economy is an example of an emerging economy which over the last few years has many success stories. After the economic crisis during the year 1991 the country’s reform measures helped a lot for the emergence of the rapid economical growth in the country. There were more foreign investments in the different sectors of the country and the information technology was booming with this rapid growth of the market. India’s economic growth rate reached to around 7 % during the 1991 reforms for three successive years in a row from 1994 to 1997 (The MIT Press, 2011). In the year 1998 the country experienced the highest growth rate in the world economy (Kapila, Kapila, 2002, p. 83). With this immense economical development in the country various sectors in the country grows in a huge amount with the advancement and use of technologies. Especially the booming Indian Software Service industry observes robust growth after the reform policies in the year 1991 (Basu, 2004, p. 217). The reform eliminated the restriction for businesses and increased the inflow of more industries within the country. This emerging market gave a great potential for Tesco to enter various countries like India, China, Brazil etc. The largest educational system at India is also preferable for any new entrants for enough supply of workforce in the country. Whereas on the other hand command economy is the one in which there is co-ordination of the economic activities of the country. All the functional activities are carried out through administrative commands and directives and regulations. All the disturbances in the economy are adjusted by the higher directives of the country in different industry. Each firms target is set by the higher directive in details. A decentralized approach is used in this kind of economical country. Often the decentralised approach of Command economy lacks in detailed information about the market and the lack of coordination of the higher directives with the lower ones often arises several problems in planning. This growing imbalance of the co-ordination of the directive and the players leads to farther bias to allocate efficiency in command economy (Department of Economics, n.d. p. 1-4). Tesco being the leader in the UK market have a great potential in an emerging economy like India rather than command economy of any other country. The massive growth potential of the country can facilitate the process of expansion for the company. The technological advancement of the emerging economy can also help in the development of the firm in the emerging market. Current economic climate in UK using business cycle model and steps taken by UK government to influence the economic climate Business cycles are observed to have several similar characteristics or stylized facts of which one is cyclical asymmetry is one where the economy behaves very differently for the act of expansion and phases of recession of business cycle (Simpson, Osborn, Sensier, 1999). In United Kingdom economic condition the major aim behind the movement is to generate money to huge amount for different purposes like for the betterment of the balance sheets along with making up the losses and write offs for short term source. The Prime Minister of the state mainly accused the bankers of UK for the economical condition of the state. Few practices of the UK economy are also not justified by the government on any grounds. For the betterment of the economical condition of the country the prime minister of the state is giving attention towards the removal of unnecessary practices of the national banking system. The present imbalance condition of the economy can only be addressed if stresses are given towards the values and ethics with hard work, honesty and responsibility within all banking system. Giving support by lending to the small and growing enterprises and can also improve the economical condition in the long run for the state. Another challenge which UK government is facing is rise in domestic unemployment and the liberal business policies. According to the last quarter output data of 2001 the economy of UK shows stagnant signs. The manufacturing and service sector of the state helped in the progress of the UK economy and the stabilization in the economy will cope with the slowdown experienced by the state in its economy. The GDP of the state shows no difference in the fourth quarter and maintained a value of 0.2 % rise in its output. The growth in the consumer spending is needed to be slow in order to build up the economy of UK (RICS Policy Unit, 2002, p. 1-2). Figure 1: Business Cycle Model (Source: Connor, 2006, p. 44) Explain how your own country balances its policy requirements for social welfare with those for industrial and trade development In order to cope with these economical problems in Pakistan various measures are implemented by the government and different policies are suggested for social welfares and industrial and trade development. Free trade policies are always preferable for the economical development of the country. But on the other hand it dominates the infant industries of the country. The domestic industries which are at its stage of infancy are incapable of competing with the well established firms from foreign countries (Gandolfo, 1998, p. 185). But on the other hand free trade conducted internationally enables the rise of economy from lower to higher point and increases the social welfare of the country. With free trade policies the country gains from its international exchanges when same commodities produced in autarky is produced in free trade. Free trade also helps to gain the advantage of production specialization point by shifting to other countries for production and control prices of different commodities (Chacholiades, 2006, p. 133). Task 3 – The behaviour of organizations and the market environment Identify and critically evaluate the effectives of the barriers to new entrants wanting to compete in the industry? In order to evaluate the competitive environment of the company it is necessary to understand the forces which are affecting the company in its industry. To evaluate these forces company’s implement porter’s five force model to evaluate the different aspects and cope with the problems for strategic implementation to maintain its profitability and growth in the market (Society for Human Resource Management, US, 2006, p. 38). One of the major forces which often act as a possible threat for the company is from the new entrants in the industry. Figure 2: Porters Five Force model (Source: Hill & Jones, 2009, p. 43) In UK market though there are very few players in grocery department but the major players like Tesco, Sainsbury’s, Safeway and Asda captures around 70 % of the market share and the remaining are possessed by small retail chains of the market like Waitrose and Somerfield (Chaffey, D. et. al., 2008, p. 207). With the growing need of the customer the grocery market is slowly transformed into business dominated through supermarkets in the industry. With the major marketing mix and operating efficiency and the flexibility of available products all under one roof gave a great advantage for the big retailers in the business to maintain their market position. This powerful activity of the large retailers like Tesco has great impact on the small traditional retail stores to gain market share and grow in their business. Thus in the same way new entrants also face strong barriers from the existing players in the market to enter the market. New entrants are not able to raise sufficient capital for the expansion plan and establish a strong supply chain management system. The high fixed cost involved and strong supply chains are two major barriers to the new entrants in the Retail industry at UK. Apart from this the huge investment of big retailers like Tesco on technological development and sophisticated control system also acts as a barrier for the new entrants. Another important dimension is the economies of scale for the companies like Tesco and Asda who can reduce the cost of products taking the advantage of their position in the market which is not possible for any new entrants in the market. Define the meaning of perfect competition. To what extent does your chosen industry’s structure fit with your definition? Perfect competition is the condition where all the players are not large enough to set the price for the industry for different products in the market. All the firms in the market are selling homogeneous products for the customers and all are price takers. None have the capability to lead the race and set the price for the products to be offered. All the companies are forced to sell their products at the prevailing rates of the products in the market. The players in the industry are possessing almost same or small market share and the buyers of the products are also aware of the type of product offered by the firms and their expected prices for the market. In perfect competition market the new entrants are free to enter and very less exit barrier is present in this type of market situation. In a perfect competition scenario the firms are not required to advertise their products and services as the market is already aware of the products offered and the approximate price for them. Incurring additional cost on advertisement and promotion only increase the cost for the firm and decrease the profitability (Peoi, 2002). Tesco being one of the leaders of the retail grocery industry at UK is also competing with other players like Asda, Sainsbury’s, and Safeway. These are the major players in the market with the most market share. But there are also many small retailers in the market who are operating the industry for whom the price set by these leaders is the benchmark. Though there is perfect competition prevailing amongst the major players in the grocery industry at UK but for the small players the price set by the leaders are followed by them to sell their products. Even on the other hand in a perfect competition market all the commodities sold by the players are same in category. But in the Tesco’s operating market the players are constantly diversifying their products to grab the market share with new expansion and invention for the customers. Identify three regulatory mechanisms that are in force. How is compliance monitored? The three regulatory mechanisms that operate in the environment of Tesco are competition regulators, industry standards bodies and consumer pressure groups regulation. Competition regulators are the government owned agencies that regulate the economy of the country and enforce several laws regarding competition in the market. In the UK market there are many regulators from the government to control the market laws for trading. Few features for competition law and policies can be referred as Internationalization, Criminalization, Private law enforcement, Due process and judicial supervision and competition advocacy (Ascioglu, n.d. p. 4). The second regulatory body is the industry standard body that regulates the market by maintaining the standard in the organizations and the industry. Various organizations are present in the market regulating the companies in their operation and standardizing the operation of the market. The third regulatory mechanism is the consumer pressure groups. This group of consumers have the power to regulate the market by pressurizing the suppliers and the manufacturers to control their prices and operation in the market. Tesco have a monitoring system which looks after the various aspects in the business by accessing the departments of the company for effective compliance handling. Monitoring the system helps to identify issues with the supply chain. 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