Impact of Competition Policy and Regulatory Mechanisms on Tesco - Case Study Example

? Lecturer: Business Environment Impact of Fiscal and Monetary Policy on an Organisation According to Keynesian economists, fiscal policies refer to the means used by the government to adjust its levels of expenditure as well as tax rates so that the economy of the nation is influenced and monitored. It involves using government tax collected and its expenditure to influence the economy. Monetary policies on the other hand refer to the way the monetary bodies of a country control money supply in the economy, usually based on the interest rate levels in the economy. According to Leach (2002), the impacts of these policies on businesses can be short run or long run. Fiscal policies are used to influence levels of aggregate demand in the economy. For the supermarket case, it would be used to achieve price stability and employment regulation. If the government for instance increases its spending and decrease the taxes, then there will be an increase in aggregate demand for the grocery products in the economy (Leach). This brings economic boom to the industry. The increased aggregate demand may cause a need to increase supply hence invoking the need to increase employment. In this case, the supermarkets would at the end have to hire extra staff. When there is inflation in the economy, the government may try to stabilize the prices of the goods by reducing its expenditure, hence reducing aggregate demand forcing the businesses to reduce their prices, hence price stability in the whole economy. Crowding out effect is realized at times in this situation. Neri (2001) asserted that monetary policies highly influence the expenditure in an economy. When the central bank of any nation increases its lending rate to commercial banks in an economy, there will be a lag in the amount of money businesses can afford to borrow from the banks in turn due to the increased lending rates by commercial banks. Public sector spending is minimised at this time because of less money in circulation in the economy. Supermarket stores and other businesses will therefore have to reduce their expenditure since access to financial services from banks has been highly reduced (Neri). Impact of Competition Policy and Regulatory Mechanisms on Tesco Regulation of the grocery industry in the UK by nature of its competition is based on four major items; prices, location of the company, product selection and promotional procedures. The industry is regulated by the Fair Trading Act of 1973 which regulates the level of competition in the grocery industry. In analysing the impacts of competition policy on Tesco PLC therefore, there has to be a consideration for the above four factors. In terms of entry into a market, the competition regulatory policies do not restrict acquisition. Tesco was experiencing completion in some areas and because of there being legislations on take-overs and barriers to entry, the small retailers were purchased by Tesco and therefore created more vivid market domination by this giant firm. According to the revised competition act of 1998 as indicated by a Lancaster university report….”any merger, whether notified to the OFT or not, whether intended or consummated, can be referred by the Secretary of State (SoS) to the Competition Commission for investigation, provided it is above a threshold size”. It is like the act allows takeovers and mergers which kills competition from the small scale retailers. The second competition policy of great importance is the transparency policy. This is mainly applicable to the promotional industry. Tesco as a company uses the Tesco Clubcard to keep in touch with its customers. However, the act does not allow the company to remain discrete about its promotional contacts with its clients. This in some cases creates an implication of leaking private company information to the competitors. The third rule is on breach of regulatory rules and the consequences thereon. The Director General of Fair Trading has the express authority to investigate a breach. If a company is found guilty, it can be fined up to ten per cent of annual revenue. Since this is a very large amount of money, Tesco as a company has worked to try and perfect its products hence creating customer loyalty. In the event that there is an irregularity, the companies always rush to clear their names from authorities so that their loyalty with the customers can be maintained (LU). Market Structures, Pricing and Output Decisions of a Business Market structures determine highly the types of prices for the goods in the market. A business under the perfect competition always tries to set its price depending on the market forces of demand and supply. This is a structure that employs the lowest levels of prices to the customers since there are many companies in the market. Each firm is a price taker in this sector and profits are supposed to be normal as opposed to economical or exorbitant. A business in a perfect competition market structure will make its pricing decisions based on the prices offered by other businesses. In a monopolistic structure, there is a high level of price differentiation. Prices may be high and efficiency less. Production at minimum average cost is not an issue followed at this structure and the efficiency that is low makes consumers to look for more choices that are efficient. Rampant advertisement is done here and coupled with the aspect of product differentiation; companies are at liberty to choose the locations of operation hence defining the prices they are to charge for their wares. In an oligopoly structure, there are very few firms and there is non-price competition. Since entry into the firm is difficult, the few firms’ influence on the prices is moderate. Prices are also above the marginal costs and therefore the firms tend to charge a relatively higher price than the normal prices in other structures. Output ability is based on the fact that the non-price competition and advertisement creates a very comprehensive decision on quality as would create a demand for the products of the business company. In a monopoly market, the prices are determined by the firm itself. This is because it is the only company in the market and industry as a whole. Marginal revenue here is equal the marginal cost as opposed to other structures. The only regulation in this structure may come from legislative powers of the government authorities. Output is usually equal or less than the market demand because when the supply drops, there is usually an increase in price to counter this. Therefore, a business under this structure sets the price and determines the quantity to produce in solitude (Tutor). Relationship between Supply And Demand The differences and similarities between demand and supply of commodities in the market are based on the laws governing these two market forces. The law of demand states that “the lower the price, the higher the demand”. The law of supply states thus “the higher the price, the higher the supply”. Wyckoff's law of cause and effect clearly elaborates the relationship that comes out between these two terms, the basis of economics. The relationship between the market forces of demand and supply can well be explained by putting into consideration the factors that affect these two. For instance, when the price of MacDonald’s Burgers increase, few people will have the demand for them. In this case, it is taken to mean that few people will be willing and able to purchase them. Though they may be willing, they may not have the ability to purchase and therefore it is said that there is lack of demand here. When there is less demand in the market for the burgers, the supply will also reduce because there is a risk of losing too many goods due to non-purchase. Another relationship can be seen from the basis of the disposable income of the consumers and the products in the market. Suppose the disposable income of the consumers decrease. Then then these consumers will have to reshuffle their list of preferences. In this case, they will only be able to purchase items that are basic to them and their use. This means their demand for the products will have dropped and hence the sellers will realize a drop in sales of some of their commodities. In this case, they will be forced either to stop supplying or drastically reduce the supplies in the market. Wyckoff's indicates the relationship between these two to be an issue of cause and effect (Williams). How External Business Environment Shapes Tesco Tesco is business chain running grocery and general merchandise stores in the UK and other countries of the world. The company runs very large supermarket chain stores and therefore the PEST analysis of the grocery industry in the UK best shapes the operations of this company. In the political scene, the UK government provides has legislative laws that every store is supposed to offer substantial employment from the unskilled to the very complex skilled personnel. Tesco employs a collection of workers from students on part time basis to disabled and elderly. In this case, this law by the government shapes the operations of Tesco. The supermarkets are also affected by economic pressures as members of the grocery industry. These influence demand, costs and supply of the commodities in the market. The economic ability of the consumers in the market is highly influenced by seasons. It has been noted that the demand of the products is high during December holidays as opposed to the other times of the year. Moreover, the world economic slowdown that happened to create the economic crisis in 2008 caused the company to reduce its supplies because the demand had drastically dropped. Socio-economic factors affect the availability of the Tesco customer base. The UK economy is being affected by an increase in the number of old people. Secondly, there is also an increase in working females as opposed to the previous years. The third socio-change is that the population is rapidly moving from junk based food to diet based food. The company has therefore intensified research into diet based food as well as trying to provide food items that suit the aging population. The more women at work means that shopping hours have been reduced. In this case, the superstores operate for 24 hours to allow those who come from work late to do their shopping. There is also the technological environment that affects the operations of Tesco and the grocery industry as a whole. In fact, it is technology that has highly influenced the fame of Tesco products. Tesco Company launched Efficient Consumer Response (ECR) initiative. In this initiative, customers have been able to benefit a lot in that goods are always available to them, the company services to a large extend have become very personalise which has brought convenience in shopping. Customers practically own Tesco and Tesco owns them (Ismail). Importance of International Trade to UK Supermarket Organisations International business is very important to any organization or country. One of the benefits is that the companies are able to get an expanded market for their goods. For instance, Tesco operates in 14 European nations and also in Asia. This is a high market that is now realised and expanded as opposed to if they were operating in UK only. The second benefit is that the companies are able to get raw materials at a cheaper price as opposed to some local supplies. By the principle of comparative advantage, there are some products that are produced very cheaply in countries that have natural bases for them. For instance, Tesco supermarkets have been importing cows from within the nations of European Union at a cheaper price than the suppliers in the UK. This creates higher profits for the companies. Thirdly, international trade creates specialization. This creates quality in the market. For instance, the UK supermarkets are able to get Swiss watches at relatively low prices but the qualities are very high (Neri). German cutlery, French silk and Scottish wool, all these are available in the market for a differentiated market that enjoys goods of ostentation. Impact of Global Factors on UK Supermarket Organisations There are several global economic factors that affect the running of UK supermarket stores. Some of these factors are currency exchange rates, socio-economic and political factors, balance of payments (surplus or deficits), different monetary and fiscal policies as well as cultural factors. The currencies exchange rates can determine to a high level the amount of profits raised by a company. Currency risks are one of the major influences of trade between a UK based super market and an external trader. When the UK pound weakens against another currency, it means that the UK supermarkets are going to reali8se less returns on the transactions that took place between the company and the other foreign trader. On the balance of payment rates, a country that has a deficit in its balances of payment may not be willing to continue importing from a UK based supermarket so as to create leverage in the deficit. If this country was an export or import partner to this supermarket, there is always a shift in the operations. Dynamism in Socio-cultural norms highly determines the continuity of business between two partners. For instance, Tesco produces pork which it may want to sell to the eastern European market. However, the region has countries like turkey that are highly Muslim dominated and this may not be applicable. Therefore, this global factor would force a reduction in trade even if it existed in the first place (Plessis). Impact of Three Policies of the European Union on UK Business Organisations The EU is a collection of all the countries of Europe that seeks to benefit all the members to have a continuous economic growth. It is based on policies that are laid down and revised from time to time so that they remain relevant. One of the policies is that one of creating an open trade in the expansive region likening it to a global system. This section seeks to make sure that the trade that is carried on is predictable by all member states, adaptable and fair. The Guardian (2013), a regional editorial cited Tesco Company as having used horse meat to manufacture some products. This was an unfair trade that a UK firm was taking in selling illegal meat in its burgers in the EU market. It prompted a check into all its stores commissioning by the EU fair trade bodies to ascertain the authenticity of this matter. In fact, all meat items around that time were all returned to the respective headquarters for clarification (Butler). The second policy is that one in which trade was to be made the foundation of sustainable and progressive development in the region. The EU was to create a rapport with all the developing nations so that it creates market for the goods from developing nations. This was aimed at creating a world-wide reach-out to all so that enough market and source of raw material is found. This policy made Europe to become a market for so many goods from Africa and Asia. The UK businesses, being part of the EU were able to get markets and sources of raw materials for its goods. The third policy was associated with creation of a favourable trading environment for companies in the EU. The first was to remove problems that have persisted in trade between these countries. In this case, there would be increased opportunities for both trade and exchange of socio-cultural aspects of these nations. Reduction of counterfeit goods and those goods that are pirated was also a policy in the EU (EC). These are substantive policies that encourage originality and profitable business to the producers. References Butler, Sarah. "The Guardian." Tesco rapped for implying horsemeat scandal affected whole food industry 4 September 2013: 2. EC, European Commission. "Trade." 10 10 2013. European Commision. 7 11 2013 . Ismail, Atiqah. Tesco Plc. - International Business Entry Strategy (SWOT, PESTEL, Porter's 5 Forces). 5 6 2013. 7 11 2013 . Leach, Graeme. Tax and Spend Fiscal Ploicy. IoD Policy Paper. London: Institute of Directors, 2002. LU, LANCASTER UNIVERSITY. COMPETITION POLICY AND REGULATION IN THE UK: A NEW ERA. Competition Policy. Lancaster: LANCASTER UNIVERSITY, 2000. Neri, Stefano. Assessing the Effects of Monetary and Fiscal Policy. Economic Research and International Relations. Rome: Bank of Italy, 2001. Plessis, Prieur du. "The 10 economic factors in the world outlook for 2011." 31 12 2010. MarketClub. 7 11 2013 . Tutor, Economics Online. "Market Structures." 24 07 2012. Economics Online Tutor. 07 11 2013 . Williams, Tom. "The Market Forces of Supply and Demand." 19 2 2010. Stock markets Synergy. 7 11 2013 . Read More