Tesco Business Environment - Example

Business Environment Table of Contents a. Comparison of Goals and Objectives 3 b. Strategies Used To Meet the Objectives of Stakeholders 4 2.a. The Impact of the UK Economic System on Tesco 7 2.b. The Impact of the UK Government Policies-Fiscal Policies on Tesco 9 2.c. The Impact of Competition Policies Practiced in the UK on Tesco 10 2. d. The impact of Regulatory policies on Tesco 11 3.a. Identifying Influence of Market Structure on Pricing Decision 13 3.b. Market Forces and Tesco Response 14 3.c. The Business and Cultural Environment Influencing Tesco Behaviour 15 4.a. The Significance of International Trade to UK Organisations 17 4.b. Impact of Global Factors on UK Businesses 18 4.c. Impact of EU Policies on UK Business 19 1.a. Comparison of Goals and Objectives It is often been debated that public limited companies and private companies possess various differences in terms of its goals, mission and strategic policies which further polarizes the working processes in the two types of organizational structures. For instance, Tesco plc is a UK based food retailer having more than 519 stores spread throughout England, Wales and Scotland. The company is incorporated with a mission “to create value for customers to earn their lifetime loyalty” (Tesco plc, 2011). On the other hand, the prime objectives of the company are to offer customers with best value for money they invest in their purchases and to obtain advantages through most competitive pricing. Furthermore, the company is determined to meet the needs and wants of customers by constantly engaging customers’ opinions in its strategic management processes relating with innovation, product and service quality store facilities and choices and thereby acting accordingly (Tesco.com, 2013). Unlike Tesco, IKEA is a leading global furniture manufacturing and retailing company. The mission of IKEA includes selling of a wide-range of furniture products and accessories at a competitive price so as to attract a larger population of consumers. Similarly, the goals of IKEA are to create efficient sales department and serve customers by meeting their needs of home furnishing. In addition to this, the company intends to provide people with an idea of shopping at IKEA’s stores for home furnishing (Dahman & et. al., 2011). Comparing the missions of both the companies, i.e. Tesco and IKEA, certain similarities can be observed. For instance, both the companies intend to provide their respective products to their targeted customers at reasonable price to obtain competitive advantages. However, Tesco firmly focuses on identifying and satisfying the customers’ needs and wants being determinant to act with due significance towards the innovation and opinions of customers. Conversely, IKEA believes in creating innovative products and thereby encouraging demand for its products. Hence, the goals, mission and objectives of Tesco can be observed as more inclined towards community support through profit in comparison to IKEA. 1.b. Strategies Used To Meet the Objectives of Stakeholders Tesco fundamentally aims at ensuring shareholders with adequate returns on their investments by generating substantial profits through investment in various stores as well as by improving productivity and making efficient use of new technologies. The company also strives to enhance the talents of its people through effective management and training practices along with rewarding them sufficiently and fairly with equal opportunities. Furthermore, the strategies of the company are closely linked with its suppliers to facilitate long term business relationship by acquiring quality products from its suppliers at reasonable price. Moreover, its strategies are also directed towards supporting the well-being of the entire community in which it operates. With this concern, the company stringently intends to deliver its responsibilities towards protecting the environment. In the course to successfully meet the objectives of its stakeholders, the company, over the years has been able to generate a steady growth in terms of profitability. The graph below depicts the last four years profit of the company earned from its UK operations reflecting a substantial growth which further reveals the organizational determination towards rendering shareholder value (Tesco plc, 2012). Graph: 1 [Source: (Tesco plc, 2012)] Due to the modest progress made by the company in the past few years and its increasing profitability, Tesco has also been able to provide fair Return on Capital Employed (ROCE). During the fiscal year 2010-11, the ROCE rendered by Tesco was recorded as 12.9% of the total capital employed which grew to 13.3% during the fiscal year of 2011-2012. The company further intends to improve its offered ROCE percentage by the end of the fiscal year 2014-2015 to 14.6%. The graphical presentation of ROCE is presented below. Graph: 2 [Source: (Tesco plc, 2012)] At the same time, the company has been effectively serving its responsibilities towards the community which has significantly contributed in the reductions of CO2 emissions in its entire business operations. The statistics postulated hereunder shall help to identify the efforts of Tesco towards the reduction of CO2 emission rates in its business process. Graph: 3 [Source: (Tesco plc, 2012)] 2.a. The Impact of the UK Economic System on Tesco The retail sector makes a considerable contribution in the development of the UK economy which accounts for more than 8% of the GDP. However, since last few years, the UK economy has been experiencing a radical recessionary situation. It has been fundamentally due to this reason that the domestic demand in the retail industry has decreased, almost in all the business sectors. The rising inflation and increase in Value Added Tax (VAT) has considerably impacted the retail segment of the country (London Borough of Hillingdon, 2012). Simultaneously, the retail expenditure growth has been significantly declining due to the recession witnessed by the country. The UK retail expenditure growth since 2007-2012 is presented below. Graph: 4 [Source: (SAS Institute Inc, 2012)] Despite the rising inflation and increasing tax rates, food and grocery segments of the retail industry in the UK appears to be successful than other sectors. Simultaneously, due to the increasing demand for food products and constant hikes in the transportation costs, it is expected that price of the food products are unlikely to fall in the near future (SAS Institute Inc, 2012). Apparently it can be viewed that there is a large scope for Tesco to gain market competitiveness through enhanced profitability. The pictorial representation below shows the effect of the UK economy on its food retailing sector. Graph: 5 [Source: (SAS Institute Inc, 2012)] 2.b. The Impact of the UK Government Policies-Fiscal Policies on Tesco The 20% rise in VAT, as was introduced on January 2011, is viewed as one of the crucial factors that shall have a dramatic impact on the profitability of almost every sector of the economy. As the burden of VAT is likely to fall on the consumers’ purchasing capacity, this shall restrict consumers spending and thereby create a negative impact on retail companies. As the result of limited spending of the consumers, the overall profitability of the retail sector including Tesco is more likely to fall in the future trends (Congressional Budget Office, 2012). Capital Economics identified that fiscal policies concerning welfare cuts, tax rise, job cuts, and public sector pay freeze among other factors shall decrease households’ income levels approximately to 3 percent which further can lead towards the rise in the food price and fall in the demand of food products, even though it is identified as a basic amenity (Retail Think Tank, 2012). On the other hand, the monetary policies in the UK may result in highly fluctuating stock market performances and increased interest rates to control inflationary situation within the country which may also limit the customers spending ability on food products. As a result, Tesco may not be able to efficiently generate adequate profits causing financial constraints. 2.c. The Impact of Competition Policies Practiced in the UK on Tesco The competition policy concerns of the UK, fundamentally recommend the setting up of a code of practice to facilitate relations between supermarkets and their suppliers in a more transparent and predictable manner (Seely, 2012). Moreover, the competition policy also creates demand for new products and innovation, necessary for economic growth and development. Simultaneously, the competition policies in the UK tends to promote companies to enhance their productivity which may further help them to earn substantial profits and ultimately aid the overall prosperity of the economy (Crown, 2011). Furthermore, the competition policies enacted by the UK government also prevents businesses from practicing monopoly at the marketplace and promotes perfect competition among the various competing firms, both national and international. Contextually, in the UK economic environment, both small and large competitors of Tesco can be identified. Hence, Tesco needs considering strategies and policies of all its competitors and frame its procedural framework according to its competitors’ strategies in order to create demand for its products and services and remain competitive in the market place. 2. d. The impact of Regulatory policies on Tesco Currently, the economic conditions prevailing within the UK is difficult and challenging for retail companies to prosper. Prices of products and services as well as costs related with the supply of commodities are currently observed as relatively higher than it was a few years back. Moreover, the economic downturn has increased the uncertainty risks in the business environment of UK. Consequently, various regulations have been formulated to protect the interests of the industry customers and therefore ensure the value delivered to customers for their investment made on a particular product and services. Hence, the regulation initiated by the country may directly or indirectly affect the nature of business enterprises by a significant extent. Notably, these regulations may either promote businesses or act as a hindrance for any business enterprise (Department of Business Enterprise & Regulatory Reform, 2008). It is worth mentioning in this context that the entire food retail segment in the UK is firmly obliged to follow ‘The General Food Regulations 2004’ (Crown, 2004). Moreover, ‘The Food Labelling Regulations 1996’ requires that food retailers mandatorily provide the complete information about the quality of the product on a label so as to assist consumers with the best buying opportunities (European Commission, 2010). Such regulations enacted in the UK require food retail companies including Tesco to strictly follow the conditions articulated in these policies. Furthermore, this regulation helps in maintaining standard competition among the competing firms even in the economic down turn and thereby prevents any company operating in the UK retail sector to compromise with their quality. 3.a. Identifying Influence of Market Structure on Pricing Decision The Office of Fair Trading (OFT) has primarily identified a few major trends in the market structure of food and grocery retail segments. According to which, the national market concentration in terms of food products is observed to be growing with significant velocity. It is further viewed that the growth in food retail segment is relatively higher than other segments of the country. Another major market structure as identified by OFT states that some supermarkets dealing with food and grocery products have moved to convenience stores segment. In addition to this, it is also identified that there are various supermarket chains operating in the UK namely, Tesco, Asda, Sainsbury’s and Morrisons which increases competition within the industrial context. It is also ascertained that within these supermarkets, considerable differences can be identified with respect to the products being offered and their pricing strategies (Crown, 2006). As stated earlier, due to the high retail food concentration in the UK, the pricing decisions of one supermarket may have radical impact on other supermarket chains as well as on the competition level persisting among these supermarkets. Hence, it can be stated that Tesco may have to face tremendous price war among its major competitors in the years to come, which shall further have substantial impact on the overall profitability of the company. 3.b. Market Forces and Tesco Response Market forces refer to the existing demand and supply relationship at the marketplace. Organizations response, in its general sense, refers to the reaction of a company to existing business circumstances. Essentially, the organization’s response to any given business circumstance is important, fundamentally owing to the reason that it is the market forces which determine the company’s overall reputation and profitability. Notably, it is important for all the companies to identify the demand and supply of their products and/or services and respond to these alterations strategically in order to gain the benefits from the existing business circumstances. As stated earlier, in-spite of the fall in the demand for products and/or services in almost all the sectors of the retail segment, the food and grocery products have been less affected by the recession faced by the UK economy. The customers’ spending behaviour, with respect to the food and grocery products, remains less likely to be influenced by the current business circumstances. However, rise in the prices of petrol and VAT has considerably influenced the discretionary income of the customers and likewise limited their spending power. It is worth mentioning in this context that Tesco has improved its in-store picking where the customers’ demand for its offered products is observed to be relatively high. The company has further launched smaller format stores in order to complement its supermarket chain networks to satisfy the increasing demand for convenience stores. Tesco recognizes these small format stores to be cost effective in meeting the need of its discriminating customers. In this course, the company also renders due significance towards performing online business operations, especially during festive seasons. Owing to the virtues of online marketing, the company has increased its online product range to 200,000 items. Moreover, the company is all set to establish 430 new stores in the UK retail market by the end of the year 2013 to adequately meet the customers’ needs and wants (Tesco plc, 2012). Keeping in a view of increasing demand for its products and its services, the company had also opened 200 new stores during the 2010-11 (Tesco plc, 2011). 3.c. The Business and Cultural Environment Influencing Tesco Behaviour The business environment in the UK is driven with many economic problems in the recent few years. For instance, the falling customer spending recorded in the recent economic structure of the nation can be observed as associated with high inflation and decreasing household income. Moreover, in the long run, it is projected that concerns related with customer purchasing power will become more dependent on social and technology factors which may include changes in customers’ life style. Consequently, these factors have led Tesco to decrease its reliance on a single product line and introduce more diverse product categories to meet the changing demand of its customers in the UK and also in the international arena. At the same time, taking into account the increasing trend of internet and growing population of internet users, the company has also rapidly engaged in promoting its online shopping segment. Furthermore, customers in the UK currently are observed as more conscious about the quality of products. Being influenced by such alterations, Tesco is constantly involved in revamping its brand quality offering its customers the benefits of reasonable price (SlideShare Inc, 2013). Cultural diversity is another important aspect identifiable in the business environment of UK. Understanding the culture of workplaces as well as people of its operating locations helps businesses to frame strategies and policies that best suit the needs and wants of the human resources and simultaneously innovate, design and offer for satisfying the expectations of its customers more efficiently (SlideShare Inc, 2013). The successful operations of Tesco, even in its adverse business circumstances, provide evidences that the company has effectively understood the business culture prevailing in the UK and thereby has been successful in obtaining the complete benefits from the environment. 4.a. The Significance of International Trade to UK Organisations The processes of globalisation and liberalisation have led many international firms to penetrate the UK market and gain substantial benefits, especially, in terms of profits. Over the past few years, international trade has remarkably flourished in the UK due to several reasons. From a critical perspective, it can be identified that the growing integration of international trade with domestic economy has resulted in the evolution of some challenges and opportunities to the UK business community that has further influenced the firms of all sizes by a considerable extent. Moreover, the UK government can also be observed to render due significance towards international trade initiating policies that are supportive to the phenomenon. It is fundamentally owing to the fact that international trade has been an important source of revenue and has significantly contributed towards the GDP of the country. As far as Tesco’s business performance is concerned with International trade, the company has been able to successfully identify the strategies of international firms and thereby, positively implement these strategies to consolidate its competitive position in the UK markets. However, the growing concern towards international trade has also increased the competition in the UK retail markets which has ultimately led towards the availability of best quality goods and/or services to the customers. This has further assisted Tesco and other market players in the UK retail industry to sustain their businesses profitably (Department of Trade and Industry, 2006). 4.b. Impact of Global Factors on UK Businesses Apart from the national factors, the global factors can also be observed to impose dramatic influences on the UK’s economic performances. To be mentioned, in its recent days, the world economies had to witness one of the worst recessions in the history of the global business. In relation to this, the UK has also not remained untouched from the global economic downturn. Consequently, the recession prevailing across the world and its influence on the UK economy influenced many companies to change their strategies and policies in order to remain viable in the marketplace. The political, social and economic factors prevailing in other countries may also have dramatic impact on the national business policies of the UK. For instance, policies related with Foreign Direct Investments in China may influence Tesco to determine its business strategies according to the circumstances and regulations prevailing in China that may have a significant impact on the stakeholders of the company at large (Lowth & et. al., 2010). 4.c. Impact of EU Policies on UK Business UK being a member country of the European Union (EU) has significant impact on its business operations because of the policies initiated by EU legislation. EU policies are undertaken after considering all the aspects of EU member states from a generalised perspective. Hence, the political and economic environments of EU Member States can also have dramatic influences on the UK business sectors. Notably, the EU policies may lay down explicit institutional requirements which the member states, including the UK, must comply with. The EU policies may further influence the domestic arrangement of the UK economy by altering various domestic regulations. It is worth mentioning in this context that the policies of EU are framed to seek greater integration among its member states owing to which, the EU policies may affect the domestic equilibrium of the UK economy. Although EU policies do not influence the domestic policies of the country directly, but indirectly it may cause the UK and other member states to alter their national business policies. In other words, EU policies are initiated to consolidate the social, political, economic and environmental contexts of almost the entire Europe. The EU policies are directed towards promoting free movements of commodities among the member states and are further intended towards reducing trade barriers within the nations. Such policies may facilitate in increasing competition between the domestic as well as members states firms. Simultaneously, such policies may also provide domestic firms with ample scope to expand their businesses in other member states and attain advantages from their operation in the form of increased profitability (HM Treasury, 2005). In order to expand and sustain its business profitably in EU member states, Tesco has to firmly abide by the policies introduced by the authoritative bodies. References Congressional Budget Office, 2012. Economic Effects of Reducing the Fiscal Restraint That Is Scheduled to Occur in 2013. Fiscal Restraint in 2013 under Current Law. [Online]Available at: http://www.cbo.gov/sites/default/files/cbofiles/attachments/FiscalRestraint_0.pdf [Accessed January 20, 2013]. Crown, 2006. 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