Environmental Factors of Tesco Plc - Report Example

Tesco plc Name Institution Date Tesco plc Task 1 (a). External environmental factors are very important to the running of any organization since they chart the way for development of the strategic plan of the particular organization. Changes that take place in the external environment will negatively or positively affect the organization. In this case Tesco plc is also affected by the events that are happening in the external environment as it can be discussed as follows; Economic Factors Economic factors are of great concern to Tesco plc since they influence costs, demands, and the prices of products offered. The entire world has witnessed economic plummeting and consequently the purchasing power of the customers has adversely affected companies with Tesco not being spared. In the same breath, the United Kingdom inflation rate has dropped from 3.6 percent to about 2.2 percent in 2010. This shows that there is mounting value of money hence reducing the living costs and the purchasing power goes up in turn (Wall & Rees, 2004). Owing to the fact that Tesco plc has numerous stores not only within the United Kingdom but also the world over, its cycles in business are not sparingly affected as a result of the sales made throughout the year. According to Robinson (2006), the prevailing economic growth has had an effect on the buyers’ purchasing power and consequently leading to reduction in the number of the sales made by Tesco plc. Moreover the income level in the United Kingdom is relatively unequal and therefore compelling some people not to afford the products offered by Tesco plc. Unemployment levels that are high leads into reduction in the demand of a variety of goods and hence the profitability of the company. The economic factors in all respect are not within the control of the company but they impact directly on the marketing mix and performance of Tesco plc. Slowdown in the food market in the United Kingdom affect the company greatly since it is still heavily dependant on the market. Political Factors Owing to the fact that Tesco operates in an environment that is globalised with stores in many parts of the world; its performance is hugely affected by the political conditions within the countries where the company has its stores. Every country has its own political setting which may be not related to that in the United Kingdom. Tesco plc has managed to flourish to a formidable level owing to the fact that the political climate in the United Kingdom is stable and corruption free. Some of the countries where Tesco plc has its stores such as Turkey, Ireland, Japan and Poland among many others are stable politically allowing an ample environment for business to flourish. The government of United Kingdom on the other hand encourages retailers and businesses to provide a job opportunities mix which will include highly paid, centrally located, locally based, flexible jobs and lowly paid jobs. Students have also been provided with job opportunities by Tesco plc. The political factors that are dominant in Britain and in the world over make Tesco plc to offer employment opportunities to all kinds of people as means of providing a livelihood to the citizens. Political stability has resulted in the profits of the company increasing. Technological Factors Another main macro-environmental variable that has dictated the development of Tesco plc products is technology. Emerging technologies has numerous benefits both to Tesco and the customers. The satisfaction of the customers rises as efficiency of production is realized, shopping is more convenient and services can be provided according to personal customer needs. The launching of the Efficient Consumer Response initiative has hastened food supply chain management. Tesco stores uses technologies such as Radio Frequency Identification, Electronic Shelf labeling, Self check-out machine, wireless devices and intelligent scale. The incorporation of electronic scanners, Electronic Funds Transfer Systems, and Electronic Point of Sale has remarkably accelerated the efficiency of stoking and distribution activities and needs can be communicated in good time to the various suppliers. Socio-cultural factors It is important to realize that markets in the world are made up of people and consequently there is a great demographic force in local and global markets. Growth in population is major interest of marketers particularly in towns, urban areas and cities but it does not translate to the perspective that an upsurge in population leads to growth in potential markets. An individual could have so many mouths to feed to an extent that he is incapacitated to enjoy some of the products offered by Tesco plc due to low purchasing power. Customer awareness has increased tremendously due to advancement in education as many people enroll to get education. The customers therefore have more high demands and expectations from the products that are offered in the market owing to the fact of them being enlightened. The United Kingdom is an amalgam of races and this has a consequence to the extent that different races have different cultures and tastes. In the various countries that Tesco plc seeks to penetrate the demographic trends have to be studied keenly in order to take in to consideration the cultural aspects. The types of services and goods demanded by consumers are a function of their consequent beliefs and attitudes and their social conditioning. Attitudes towards food are persistently changing as customers become more health conscious. Tesco plc is incorporating organic products in its product mix to adapt to the changing needs. Changes in demographic factors such as increase in female workers, decline in home meal preparation and aging population translates to retailers in the United Kingdom market putting more emphasis on added-value services and products. Emphasis is also on supply chain, own-label share of the business mix and various operational movements which can eliminate extra costs in the business. Tesco is located strategically in places where more buyers reside. Indicators in trends of British customers indicate that the customers are moving towards bulk and one-stop shopping which is occasioned by changes in the social behavior. Non-food items available for sale in Tesco stores have consequently been increased to cater for this. Legal/legislative factors The various government policies and legislations have a direct influence on the performance of Tesco plc. For example, the Food Retailing Commission (FRC) proposed the enforcement of Code of Practice that outlaws a majority of prevailing practices which include changing agreed prices retrospectively or without notice and demanding payments from suppliers. The existence of powerful competitors with brands that are established brings forth a threat of intense price wars and strong need for product differentiation. Policies of the government concerning monopoly control and reducing of the power of the buyer is bound to limit entry to the sector in the wake of such controls as limits to access to raw material and license requirement. Tesco offers consumers a price cut on the fuel basing on the amount spent on groceries at the stores. When prices are lowered to promote goods, else in the stores prices are raised to compensate for it. Competitive law is established in the United Kingdom under the Competition Act 1998 and the Enterprise Act 2002. The behavior of businesses in the country has been affected greatly with the legislation that is put in place. Tesco plc has to comply with the legislation set by the government and government agencies. Tesco is greatly involved in selling drinks and foods and consequently to abide with the Health and Safety Laws in the United Kingdom and any other country it operates in. Environmental Factors Worldwide there has been an upsurge on environmental preservation and companies are looked forward to take part in preservation of the environment. A large part of population that is realized in the environment leading to adverse climate change has come from production industries. In an effort to maintain and preserve the environment Tesco plc always uses waste disposal services that are duly licensed. There requirements that legally compel companies in the United Kingdom to focus on the aspect of sustainable development and this can not be attained in the absence of ways of disposing wastes that are professional. Water utilized at Tesco plc is normally recycled so that it can be used again and through this an important resource in the United Kingdom is preserved. The consumers are made aware of the effects of environmental pollution and consequently encouraging the buying of products that have been produced through means that are environmentally friendly. Task 1 (b) Tesco plc stakeholders include customers, investors, employees, communities, suppliers, non-government organizations and government and regulators. The expectations of the various stakeholders are as follows: Customer Customers expect Tesco plc to provide a remarkable shopping trip and the same time be an excellent neighbour. They want the company to be honest and fair and avail quality and choice including affordable, healthy and sustainable products. The customers are at the fore front of the policy of the company and the company has a responsibility of informing and empowering them for instance through nutrition and carbon labelling. Investors Investors look for competitive returns from their shareholdings, together with the assurance that their investment are in a well-organised and sustainable business. The investors look forward to Tesco plc to possess a robust strategy and report of the processes and progress in a transparent and meaningful manner. Employees In order to realise its goals, Tesco plc has vibrant and dynamic staff. The employees expect interesting and secure jobs with terms and conditions that are fair and an opportunity to grow. They expect to have a manager who is helpful and to be addressed with dignity and have safe and healthy conditions of working. The employees are the company’s ambassadors for its environmental and community causes. The employees also expect to be included in key decision making processes. Communities Communities as good neighbour look forward to being given job opportunities especial in the prevailing economic times. They also look forward to Tesco to engage in healthy, regenerated communities and support local initiatives and causes. The communities also expect Tesco to take part in preservation of the environment. Suppliers Suppliers need to be treated honestly and fairly. They look for relationships that are long term and opportunities for expansion and growth. Government and regulators These stakeholders look forward to Tesco to comply with the law, provide job opportunities that are family-friendly and secure and training that is of good quality. They seek the support of Tesco plc on various initiatives like those related to healthy policy. Non-governmental organizations The NGOs look forward to Tesco plc to demonstrate leadership on CR issues from ethical trading to climate change. The NGOs like the company to provide clear principles and policies and for the company to communicate views to them in a manner that is open and transparent. Task 2. (a). Tesco plc holds a competitive position in respect to marketing environment and the external environment affect it strategic plan. Tesco plc possesses a formidable and equally strong home brand which increasingly becoming recognised in the whole of Europe owing to the prevailing expansion program. Mourdoukoutas (2006) notes that Tesco plc can take advantage of its own brand and collaborate with a leading Swedish manufacturer of clothing for children and jointly there will be promotional activities for both the Swedish company and Tesco plc. Tesco also has a very good financial health and therefore it could afford to pay for expansion plans which will include marketing programs. Tesco plc brand awareness is growing globally and this is an opportunity for the company to penetrate other unreached markets. Innovations and alliances could also propel the company to great heights. The political stability in the other countries should give the company a go ahead to venture into these particular markets. Task 2 (b). Strengths Tesco plc has several strengths that make it stand out as compared to other competitors. Increasing market share is a strength that the company has. Tesco plc a thirteen percent share of the United Kingdom market. Its capability to be multi-format means that it will keep growing in its share in food, whereas at the same time increasing space contribution from hypermarkets will permit it to gain a higher share in non-food (Grundy & Brown, 2002). Tesco plc growth generally and ROI show no signs of going down making it to be another strength that the company has. Tesco plc is the second largest convenience store chain after the Co-operative Group and the company looks forward to opening an additional fifty nine new stores in the United Kingdom. Tesco has realised growth in its non-food division to the extent that its revenues now total twenty-three percent of total group earnings. International business of Tesco has been growing steadily and more profits are expected to trickle in. Tesco has a formidable insurance base. In fiscal 2003 Tesco Personal Finance reached the level of one million insurance policies making it to be one of the fastest expanding motor insurance providers in the era. Tesco plc online is the world’s biggest online supermarket and this enabling the company to reach many customers all over the world. The brand value of the company hastens its operation in Europe in particular hence increasing its sales even in Asia and Ireland. The company has a strong brand image associated with excellent quality, trustworthiness and impressive value (Mourdoukoutas, 2006). Weaknesses The company has a weakness of heavily relying on the United Kingdom market. Whereas it is growing internationally, Tesco plc is still dependent on the United Kingdom market. Any change in the local market will affect the company negatively. Secondly Tesco plc is not expected to reduce its debt in a long period. Tesco has large capital expenditure program majorly owing to its large investment in space for new stores. Since its expansion is very aggressive, Tesco plc has minimal free cash for other activities and operations. The serial acquisition habit that is demonstrated by Tesco plc in the recent past tend to reduce earnings quality and visibility. Task 3. (a). Core Competence Superior performance has to be dictated in the manner in which resources of the company are deployed to realise competence in the activities of the organization. Core competencies are aiming at outlining the competitive edge of the company. The management at Tesco focuses on the competencies that actually affect the competitive edge. Tesco plc has provided potential access to a wide variety of markets. This enables the creation of new products and services. It has established leadership in the food retailing industry. It had clear and distinctive brand proposition that had an emphasis on a market segment that is properly defined. Tesco plc is a company recognised for providing most efficient and customized service which is tied on excellent management of customer relationship (Terterov & Reuvid, 2005). The company makes a contribution that is significant to the perceived customer benefits of the outcome and in so doing it delivers fundamental customer benefit. Tesco plc has been successful in getting the leadership of the retailing market. Tesco plc implements and design effective supply system and delivers a customer interface that is efficient. Tesco plc was the first United Kingdom grocer to come up with a loyalty card and it became successful. Thompson & Martin (2010) argue that the competence of Tesco plc stands out to be unique making them difficult for competitors to imitate making it to be highly competitive. Tesco had a formidable position in the United Kingdom retailing industry and it was the leading United Kingdom food retailer. Task 3. (b). The cost leadership strategy is one on the aspect Tesco plc can strive to maintain and perfect to have the lowest costs in the industry and provide its services and products at a huge market at the lowest prices. The products have to be priced competitively to be able to generate profit margins that are high. Tesco plc has to diversify into another strategy of differentiation then it should try to offer products and services having unique features that are valued by the customer. Breadths of product offering, customer service, special feature, or technology are common approaches to differentiation. Tesco plc also could use differentiation or cost leadership strategy targeted towards a focused and narrow market. The company has to create internal efficiencies that will assist is absorbing pressure. Task 4. (a). Tesco plc could engage in a number of strategy options that could be applied in its expansion. The company could opt to apply strategic alliances and joint developments in its market penetration strategy. Scholz and Zentes (2006) point out that getting to new markets like in Japan and China can serve to be a driver for growth of the revenues of the company and expansion strategy. Asian markets will be expected to increase in customer spending and escalated trends towards retailing. The new markets represent high opportunity demographically. For Tesco plc, it could engage in strategic options which include international alliances with other retailers in the markets in Asia. By getting into partnerships or joint ventures in order to attain a larger market presence and huge economy scale, Tesco plc has to draw the vast local knowledge and expertise of operating of the partner while at the same time adding its own product development, supply chain and stores operation skills to provide an excellent shopping experience to the customers (Nicholls & Opal, 2005). Tesco plc could explore product development for diversification purposes. The environment for business may create pressure for new services and products at the disadvantage of established provisions. If new products are developed in the prevailing markets then a product development strategy has to be put into consideration. The extent and nature of the diversification should be put in consideration to the corporate strategy rationale and the portfolio diversity (Mourdoukoutas, 2006). Innovations have to be a key driver for product development at Tesco. Tesco plc could develop a portfolio of different store formats in the United Kingdom each one designed to offer a different shopping experience. Tesco plc has to maintain a command on premium price. It has to minimise internal weakness and exploit the potential to the last limit. Tesco could employ the second strategy but also integrate the others to make it effective (Willmott & Murphy, 2010). Task 4. (b). The chosen strategy for Tesco plc should be diversification by means of product development and innovation. It would be appropriate to produce goods efficiently with the needs of the customer at heart and at affordable prices. Vision The vision is to be the leading retailing store through products of affordable and sustainable products. Mission To provide the customers with personalised customer experiences that will create loyalty, repetitive buying and hence increase increased profitability. Objectives To be the largest distributor of food products and drinks To be in the command of the price premium To conduct business activities in the most appropriate ways that is sustainable and environmental friendly To provide employment to the local communities and to economic growth To adjust to the changing needs of the customers Strategy to implement Brand extension through diversification is the best strategy to implement in the case of Tesco plc. The strategy will enable the emerging needs of customers to be addressed through diversification and product differentiation. Personalised and customised services will be offered to the customers according to their needs (Reuvid, 2005). Resources needed The resources that will be required for the implementation of the strategy will include flexible and dynamic staff, financial resource for research and expansion, innovation centres, technological resources and well informed management to provide leadership (Grundy & Brown, 2003). Task 4. (c). The management and all the employees should be consulted to come up with any innovation suggestions that they may be having. The employees will come up with the ideas and then they will be sieved to remain with the ones that are more pragmatic and result oriented in relation to the available resources and time. The views of the customers should be incorporated into the system to ensure provision of personalised and customised services. The resources will then be mobilised to ensure that the important programs run on schedule. It is important to have an implementation team that will initiate the strategy in phases until the last bit is accomplished. Prior to the implementation all the views from the different stakeholders will be considered including the suppliers and non-governmental bodies (Dive, 2004). Task 4 (d). According to Fernie (2005), the success or failure of the strategic plan will be monitored through an efficient customer response system that will enable the gathering of immediate feedback from the customers. The performance of the company in the market will be monitored see if the profitability has improved or declined. The customer reaction is the best way to determine the reaction on the ground to the strategy. More importantly there will a steering committee to see the implementation the strategy plan and it will be keen to early as possible to dictate the failure of success of the strategy. References Dive, B. (2004). The healthy organization: a revolutionary approach to people and management. London: Kogan Page Publishers. Scholz, C. & Zentes, J. (2006). Strategic management: new rules for old Europe. Wiesbaden: Gabler Verlag. Willmott, H. & Murphy, J. (2010). Organization theory and design. Hampshire: Cengage Learning EMEA. Fernie, J. (2005). International retailing. Bradford: Emerald Group Publishing. Wall, S. & Rees, B. (2004). International business. New Jersey: Prentice Hall. Nicholls, A. & Opal, C. (2005). Fair trade: market-driven ethical consumption. Houston: SAGE. Robinson, C. (2006). Regulating utilities and promoting competition: lessons for the future. Northampton: Edward Elgar Publishing. Grundy, T. & Brown, L. (2003). Value-based human resource strategy: developing your consultancy role. Oxford: Butterworth-Heinemann. Thompson, J. & Martin, F. (2010). Strategic Management. Hampshire: Cengage Learning EMEA. Grundy, T. & Brown, L. (2002). Be your own strategy consultant: demystifying strategic thinking. Hampshire: Cengage Learning EMEA. Reuvid, J. (2005). Doing Business with Hungary. London: GMB Publishing Ltd. Reynolds, J., Cuthbertson, C. & Bell, R. (2003). Retail strategy: the view from the bridge. Oxford: Butterworth-Heinemann. Hitt, M.A, Hoskisson, R.E. & Ireland, R.D. (2008). Understanding Business Strategy: Concepts and Cases. Michigan: Cengage Learning. Terterov, M. & Reuvid, J. (2005). Doing Business with the Czech Republic. London: GMB Publishing Ltd. Mourdoukoutas, P. (2006). Business strategy in a semiglobal economy. New York: M.E. Sharpe. Read More