An Analysis of the Impact of External and Internet Environment on Tesco Corporation - Term Paper Example

Analysis of Globalization and Innovation Introduction: The concept of globalisation in the world emerged in 1990s when developments and advancements in networking and communication technology took place. Since then, most of the companies went global and trade among nations increased because communication barriers among or between business groups in different nations had been mostly eliminated. Indeed, the economic growth in advance economies such as USA, UK, Japan, France, Italy, Germany and other nations also triggered growth in developing nations and third world economies. In addition, new business groups also joined the arena that in turn resulted in stiff competition among firms or entities. In short, customers were bombarded with a variety of products manufactured by different organisations that in turn increased their bargaining power. It must be pointed out that businesses today opt to innovate their processes and create new differentiated their products so that they could obtain a clear and distinctive image in the mind of their potential customers. They also pay special attention towards the use of advertising media including print, electronic, radio and internet for marketing purposes. (Daft, 2009) The ‘Task A’ in this paper will provide an analysis over the impact of external and internet environment on Tesco Corporation and evaluate the organisation responses. The ‘Task B’ in this paper will throw light over the Corporate Social Responsibility Programme as formulated by strategic planners at Tesco Corporation to entice customers towards their market offerings and to enhance their market reputation and goodwill. Task A Tesco Corporation is A United Kingdom based grocery store and retail services provider that enjoys global sales of more than 62.5 billion pounds. Indeed, the company has expanded its operations in various countries including USA, Turkey, Hungry, Poland, Slovakia, Czech Republic, China, Japan, India, Malaysia and other Asian and European economies to become a market leader and consider as pioneer in retail consumer products and services. Indeed, the Tesco Corporation has enjoyed a share of nearly 31% in UK with sales of over 42 billion pounds. The global workforce has increased to more than 470,000 employees, which simply shows the strength of this group. (Kowsmannm, 2010) 1- PESTEL Analysis: 1.1-Political Tesco Corporation has established its grocery stores and other diversified businesses such as automobiles, banks, insurance, electronics etc in various emerging economies such as Malaysia, Indonesia, Turkey, Hungry, Poland, Slovakia, Czech Republic, China, India and others etc. Most of these countries have although enjoyed decent economic growth rates, yet these nations do not really politically strong democratic forces unlike UK, USA, France, Germany etc. Any political instability, change of government, law and order crises may force Tesco to reduce its production and expansion plans in these regions that in turn would hinder the growth plans of Tesco UK which is their parent company. In response, Tesco has been careful in choosing its destinations and seek government assurance and guarantees for investment purposes. In this way, Tesco minimises the risk of opening new stores and business outlets in countries outside UK. (Tesco Annual report, 2010) and (Potter, 2010) 1.2- Economic The economic meltdown and financial crises that was actually a result of US sub prime property mortgage crises and subsequent bankruptcies in US financial sector in 2008 – 2009 has also affected Tesco UK. Indeed, the British economy observed negative economies rates and severe contraction in these years that not only increased unemployment but also shattered consumers’ confidence who observed a drastic decrease in their real incomes. In turn, this impeded the sustainability plans and growth prospects of many business entities. The uncertain corporate environment forced the potential consumers to reduce their spending on luxurious products (having elastic demand) and focus more on food products and other necessities having inelastic demand. This changing trend, however, did reduce the consumption of electronics and clothing products that affected Tesco’s monetary gains within Britain. In addition, other factors such as rise in oil and fuel prices, corporate tax hikes, power tariffs and inputs’ prices have increased the cost of production of the international player. Changes in Exchange rates and increase in value of British Pound against major world currencies such as US dollar, Euro etc also impacted the export revenues. (Daft, 2009) In response, Tesco Britain launched the loyalty and membership cards through which they offered price incentives, sales discounts and free gifts that enticed customers towards their stores. Sales in Britain increased despite global recession and Tesco observed a reasonable 4.2% growth in UK market. New stores were also opened; however, prices charged were lower than industry’s average. Strategic planners of Tesco UK are quite sure that global economic recovery will help improving the financials of the group thereby increasing their sales and profit margins. (Tesco Annual Report, 2010) and (Zekaria, 2010) 1.3- Social Indeed, the global recession has resulted in lower consumer spending and shattered consumer confidence because of extremely unstable and uncertain corporate environment where new jobs are not creating presently. Consumers have become very cautious and have an inclination to spend money on necessities while they tend to avoid any additional or unnecessary purchases. In simple words, customers are demanding more value from producers and sellers of various products. Overall, they tend to demand high quality products at lower prices because of fall in their real incomes. (Tesco Annual Report, 2010) Tesco, after analysing this social change in its market, has started offering products that are cheap and give more value to fulfil their desires and preferences. Indeed, Tesco is very flexible and adapt to market changes. 1.4- Technological Indeed, the competitors of Tesco such as Sainsbury, Walmart and others have inducted latest machinery to increase their efficiency and reduce their costs simultaneously. Tesco has focused on employing highly sophisticated state-of-the-art modernised production machinery at its units to maximise its productivity and restore its competitiveness in the market. These modernised plants will enable Tesco in becoming carbon free and producing more environment friendly products. (Mike Yorwerth Interview, 2010) 1.5- Environmental: The global warming issue and depletion of ozone layer as a result of carbon emissions and increase in consumption of fossil fuels have forced the concerned authorities to formulate and implement new laws and regulations for environmental safety and security. Supranational corporations as well as all major industries that contribute in carbon emissions are compelled to produce more socially responsible products through innovated processes in an attempt to secure environment. In response, Tesco Britain has highlighted its aim of becoming ‘carbon neutral by 2050’ by using new processes, inputs and information technology that in turn reduce emissions of poisonous materials. (Mike Yorwerth Interview, 2010) 1.6- Legal: As far as legal factors are concerned, it is worthwhile to mention that Tesco faced problems when it was critised by investors’ lobby and other pressure groups for paying significantly higher salaries and benefits to its executives. However, these groups also condemned Tesco for modifying performance standards that are used to determine pay packages. In addition, the expected changes in corporate taxes (probably increase) may hamper Tesco’s British and global operations. (Cowell, 2010) In response, Tesco initiated a reputation management campaign to contact its shareholders and all other stakeholders. Tesco planners explained their reasons to shareholders for making changes in performance criteria. Indeed, this helped Tesco in restoring shareholders’ confidence and removing their concerns on reports launched by other institutions against Tesco. (Tesco Annual Report, 2010) 2- SWOT Analysis Some of the major strengths and weaknesses (Internal) of Tesco followed by the opportunities and threats (external) are as under. 2.1- Strengths: Tesco is a supranational organization with business operations all across the world. The supermarket has established reputation, brand recognition and goodwill in the marketplace. Tesco enjoys financial strength and extensive resources because it dominates the British market having share of over 30% and has sales of over 62.5 billion pounds. Indeed, Tesco has been greatly benefited from its experienced and professional management comprising of famous executives namely Tim Mason and Terry Leahy who worked to increase Tesco’s profits and market share. The above mentioned argument can be endorsed by the fact that Tesco’s earning before taxes in 1995 were under £600 millions and sales were just above £10 billion. In 2009, the sales jumped to record £60 billion while Earning before taxes reported to be £3 billionn. (Reece, 2009) Tesco focuses on innovation and differentiation thereby having an organized Research and Development Department that contributes in Tesco’s product development growth strategy. Indeed, the supermarket enjoys friendly relations with partners and distribution channel members to avoid any disruptions in its supply chain network. Tesco has formed its self-owned retail stores so it can be called as a manufacturer-cum-retailer. The company uses information and communication technology to facilitate in internal operations (record management, information / knowledge management, HR records etc) while also uses latest plant machinery at its production sites to achieve economies of large scale operations and productive efficiency. In addition, there has been special focus on advertising and internet marketing to persuade consumers towards its produce and trigger purchase responses. The company has adopted a long run growth, internal control and risk management strategy to foster its expansion plans and ensure sustainability. The company saves sufficient costs through recycling and reusing of waste products at production sites. (Kowsmann, 2010) and (Fletcher and Shannon, 2010) 2.2- Weaknesses: Tesco’s sales are largely affected in mostly emerging Asian and US economies where consumers felt the recession of pinch. The company may not be able to control its structural and operational costs because of increase in prices of inputs and executives’ salaries. The demand of Tesco’s manufactured products together in emerging and advance markets is still lower (global sales are only 20 billion pounds) because of stiff competition faced by the supermarket. 2.3- Opportunities: Global economy is coming out of recession that will improve consumer demand of products offered by Tesco Corporation. Sales in Britain and international market will increase further by 2011. Tesco has focused on Product innovation and Diversification followed by introduction of new and improved existing products. This will enable the supermarket to lure new customers towards its retail outlets and in turn increase sales volume. (Peston, 2010) and (Zekaria, 2010) 2.4- Threats: The economic downturn has forced potential consumers to reduce their spending in international markets as well as in Britain. However, Tesco was only able to retain its sales in UK. The company officials expect a surge in International oil and food commodity prices with global economic recovery that will may increase inflation in especially emerging economies and UK thereby thwarting Tesco’s long term growth strategy. Tesco may get involved in price wars if its competitors reduce their prices to increase their market share. This would reduce Tesco’s profitability and adversely impact its financial statements in the short run. (Sakoui, 2010) Task B Corporate Social responsibility refers to the concept that the management of business organisation will take logical decisions that for welfare of society and economic well-being of the firm. In short, it is about returning to society by an entity in the form of donations, charities, community welfare projects (such as monetary disbursements for construction of roads, educational institutions, anti smoking and anti aids campaigns and others) and production and marketing of socially responsible products through socially responsible processes. A Corporate Social Responsibility programme helps the business company in enhancing its image or creating positive impression among potential consumers. Customers appreciate these welfare initiatives and tend to become loyal towards company products and market offerings. Tesco, a supranational organisation, has to deal directly with customers at its retail outlets; therefore, the top management assumes to have greater responsibility towards society. The company has been focusing on reduction of carbon emissions (environmental safety), empowering customers, purchase and production of responsible products, employees’ training to make them more socially responsible and on creating healthy and safer office / store working environment (green). (Kurtz and Boone, 2003) 1- Environmental Safety: Indeed, it is worthwhile to mention that Tesco has launched a strong and comprehensive environmental safety initiative. The implementation of this recently formulated strategy has enabled Tesco to reduce carbon emissions by nearly 8 per cent from its retail stores and supermarkets in 2010 compared to 2006 -2007. In addition, the carbon reduction from existing supply centres, retail stores and service outlets was ‘nearly 5.5 per cent in 2010 compared to 2009’. It must be pointed out that Tesco has increased number of stores in past three years as part of its aggressive expansion policy followed by a substantial increase in production of various food and other commodities. Even then the reduction in carbon emissions shows the strength of the company’s CSR programme and its authenticity towards greater consumer welfare and society. (Kurtz and Boone, 2003) and (Tesco CSR Report, 2010) Tesco has set a plan that it would open more environment friendly new stores from which carbon emissions will be 30% lower than that of new centres and supermarkets opened in 2006 - 2007. Special attention will be paid to diminish Carbon Dioxide emissions by ‘10% in 2010’ in Tesco’s entire supply chain network through efficient transport facilities, use of alternative transport options (more specifically rail network) and redefining routes used at present for delivery and supply of Tesco brand products. Indeed, the supermarket giant has an aim to reduce emissions in their supply chain ‘by 30% by 2020’. By focusing more on alternative transportation option such as rail network, the company has reduced the consumption of fossil fuels (diesel and petrol) that in turn have reduced the carbon emissions by more than ‘12,000 tons in 2010 compared to net emissions in 2006.’ The officials and executives have emphasised to enhance communication and coordination with distribution channel members including raw material suppliers, dealers, whole sellers and retailers. Together, they will reach consensus to recycle the waste for obtaining major raw materials and use renewable sources to produce electricity and power for factory operations. Tesco has adopted a strong policy that it would recycle maximum waste and would divert 100 per cent of waste material produced at manufacturing sites. This poisonous waste does not go directly to landfill rather most of it is recycled and reused to obtain raw material and generate power / electricity for running production plants. Furthermore, Tesco recycles ‘leftover meat’ for renewable electricity and Carrier bags and Card boxes for reuse. (Chopra and Meindl, 2005), (Tesco CSR Report, 2010) and (Tesco Annual Report, 2010) As far as other facts are concerned, it is worthwhile to mention that carbon emissions have reduced by nearly 28 per cent from construction and development of new buildings in 2010 in comparison to emissions from the similar activity in 2006 – 2007. The ‘absolute emissions’ in United Kingdom alone are decreased by 2 per cent despite strong growth of 4% in production and sales. This is indeed an evidence of the fact that environmental safety program is moving in the right direction because results obtained are well above expectations of Tesco’s top management. In addition to above mentioned, Tesco successfully inaugurated its first ever carbon free super store in United Kingdom as part of company’s long term policy of becoming a carbon neutral company by 2050. However, the proponents of Green economy employed at Tesco Corporation have argued that Tesco could accomplish its goals and ambitions by 2030 if it continues its current tactics that have so far produced extraordinary results. (Mike Yorwerth Interview, 2010) and (Tesco CSR Report, 2010) For instance, Tesco has only focused on environmental safety but also ‘foot-printed over 500 products in Britain and in South Korea’ mainly because it wants to enhance consumer awareness as well as market itself to improve its overall image in the eyes of stakeholders. Tesco is among those very few international companies that observed phenomenal growth of 7.5 per cent in net sales across the world during tough in fact most challenging business conditions in 2009 - 2010. In contrast, the supermarket observed a less than proportional increase of just 3.7% in carbon footprint in comparison to fiscal year of 2008 – 2009 that is an evidence of viability of CSR initiative. (Tesco CSR Report, 2010) It should be pinpointed that Tesco has efficiently managed its transport fleet comprising of 1700 trailers and trucks despite the fact its production and sales volume has increased considerably in past few years in United Kingdom. The company has installed an information system that provides an analysis over efficiency of each transport vehicle. This system assists the supply chain personnel to determine the most profitable routes and areas in terms of sales. The information is then utilised to conduct transport operations. In addition, the vehicles drivers are constantly trained and educated about techniques such as ‘use of top gear, constant speed’ to ensure efficiency and low fossil fuel consumption. In short, this strategy has resulted in reducing more than 12,000 tons of Carbon emissions per annum. Tesco is also investing in ‘double-deck lifts and double-deck trailers’ to maximise the efficiency of its transport fleet. (Chopra and Meindl, 2005) 2- Community Welfare Programme: It should be pointed out that Tesco has more than 100 Community Champions in United Kingdom that will be doubled in next 5 years. In total, Tesco has more than 270 Community Champions across the globe. These people are actually the locals who are employed by Tesco but they are also responsible to mingle in society to increase customer interaction and form cordial relationships. Indeed, Tesco organises various programmes such as Community Fair, Community Awards, educational and training seminars / workshops etc for greater welfare. In addition to above mentioned measures, Tesco also donates monetary amounts for charity purpose, which is used to help people who suffer with natural calamities, disasters and to finance educational projects run by Non governmental and human rights organisations. Tesco also donated 50,000 pounds for people affected and internally displaced after Haiti earthquake disaster. It should be noted that Tesco donated around £62 million in fiscal 2010 as a charity, which is nearly 2% of total earning before taxes as generated by supermarket from its operations. (Tesco CSR Report, 2010) and (Tesco Annual Report, 2010) A very strong Community Welfare Initiative was the ‘UK Regeneration Partnerships’ that is aimed to open stores at different profitable sub urban locations and to employ people who are unemployed, handicapped, semi skilled or unskilled due to lack of educational and training facilities. This programme has created more than 3200 jobs in past 10 years and enabled in changing life of unemployed personnel and their households. The areas targeted to open “Regeneration Partnership stores include Oldham, Litherland, near Liverpool, Hodge Hill and near Birmingham.” (Tesco CSR Report, 2010) Continuing the above, it should be highlighted that Tesco does not adopt any unethical marketing practices to mislead to delude its customers rather makes its potential and loyal customers aware about perceived benefits and demerits of a certain product as part of its ‘ethical trading incentive scheme’. Unethical practices such as deceptive pricing, use of illicit raw materials and others are not employed. Similarly, Tesco does not exploit its customers and reap profits by using unethical practices such as artificial shortages, short term price hikes and temporary hoarding of consumer goods that are heavily demanded in the market. In addition, Tesco has been focusing on empowerment of customers in UK through SMS campaign named ‘Every Comment Helps’, thereby giving an opportunity to customers to provide feedback and reviews about their experience at Tesco retail outlets. This is an attempt to foster improvement and consumer services within stores and distribution centres. (Tesco CSR Report, 2010) 3- Relationships with Employees, Partners and Distribution Channel Members: According to results of a survey conducted by Tesco with partners in all UK based and global stores, over 90% of distribution channel members and raw material providers revealed the fact that the top management is keen to maintain smooth and friendly relationships thereby paying ‘respect’ to their business partners. The company in this way minimises the probability of disruptions or delays caused in supply chain, and at the same time, reduces the chances of disputes or conflicts by fair treatment policy. It is justified to conclude that Tesco barely faces any supply issues due to efficient delivery of inputs by trusted suppliers. (Tesco Annual Report, 2010) and (Daft, 2009) In addition, the strategic planners pay special attention to maintain relationships with their human resources. Indeed, the top management considers the fact that satisfied and happy employees are highly committed to their jobs and work hard to satisfy their customers. Tesco trains its workers to believe in advantages of green economy or green revolution. The supermarket also initiated a Home Insulation’ programme in 2009 and offered discounts to employees as part of its strategy of going green. Similarly, the supermarket also spread awareness among employees about reducing Carbon Emissions through its organisational newspaper. (Mullins, 2007), (Tesco CSR Report, 2010) and (Mike Yorwerth Interview, 2010) In conclusion, Tesco has a very strong CSR programme that focuses on recycling and reusing waste material, on reducing emissions of gaseous mixtures, on community welfare and on building smooth relationships with partners, employees, shareholders and stakeholders. 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