Tesco PLCs External and Internal Business Environment - Coursework Example

? Management Report Environmental Audit Executive Summary Tesco plc is one the leading brands in the grocery and supermarket sectors in UK as well as in the world. Tesco has prepared a 5 year long growth plan phase where the mission is to diversify the portfolio of the company. Two specific options are chosen by Tesco to implement the plan. One is the diversification through new strategic business units and diversification in terms of geographical locations. The company has already established business outlets in various international countries. Due to the global financial meltdown the company is facing tough situation both in home country as well as in foreign markets. The research report identifies and discusses the effect of the external and internal business environment of Tesco. Based on the evaluation of the two types of effects the present strategic position of Tesco is analysed and discussed. Table of Contents Executive Summary 2 Introduction 4 Analysis of external business environment 4 Analysis of internal business environment 7 Critical evaluation of strategic position 8 Conclusion 9 Reference List 11 Introduction Tesco Plc is one of the largest UK supermarket retail chains. It is a multinational grocery as well as a general merchandise retailer. It is head quartered in Hertfordshire, UK. There are as many as 500 different products sold by the company. Some of the well known departments and stores are Cash and Carry, Warehouse Club, Convenience Store, Forecourt Store, Department Store, Discount Department Store, Discount Store, hypermarket and supermarket (Bajaj, 2001). The total revenue generated in the year 2013 is ?64.826 billion. The total operating income is ?3.074 billion. Tesco Plc has 3 different subsidiaries, which are Tesco Stores, TESCO Bank and Tesco Mobile. The Company has presence in 14 different countries, some of which are in China, Hungary, and Slovakia etc (Gina, 2013). The company has a supply and distribution channel which is diverse and complex. The raw materials are gathered from a multitude of farmers and producers. The farmers and producers supply the products to the distribution centres. The supply and distribution centres then send the products to the respective retail stores spread across different geographical locations. Analysis of external business environment The analysis of the organization’s external business environment is done by help of the PESTEL Framework. Political The political system of UK is stable. The stable political system has helped retail businesses like Tesco Plc and associated business like Tesco Bank and Tesco Mobile to flourish in the last 3 years. It must be noted that after the economic deluge hit the whole Europe, prime minister and other allied political parties forwarded economic help packages to certain industrial sectors. The economic package helped to boost the performance of Tesco Plc and other retail sectors. Although the real economic benefit derived from such economic help packages is still a matter of further questioning and discussion, but it helped the companies like Tesco Plc in one way or the other way. There are no transfer restrictions, or risks related to change of government. The relationship between the ruling political party and Tesco plc is a Laissez-faire type. Economic The economic condition of UK has started to improve after the financial crisis hit the whole European market. The market trends indicate that the share market and the commodity market have started responding to the fiscal stimulus of the government. The inflation rate has not come down yet to the level it was before, but it is holding steady for the past 5 to 6 months (Gina, 2013). The income levels have not increased sufficiently to counter the effect of inflation but the tax rate has been slashed slightly except for the higher income groups. The fiscal policy by the UK government has not been able to steer the economy out of pitfalls yet. It is hoped full that a couple of more fiscal policies will help to bring stability in the faltering economic system. The global economic condition is in shambles. The sudden shift in the balance of economic power has created a dicey situation between the East and West. Social UK has become one of the unique places on Earth that provides shelter to a multitude of religions and ethnicity. It has become home to varied cultures, creed, ethnicity and religions (Bonaccorsi and Daraio, 2009). Thus, the essence of UK is slowly turning from being a strictly English oriented to a more multifaceted orientation. The transition is evident in the language, in the buying behaviour, in the way the business is conducted and the general way of life. Technological The advent of communications network and information storage and retrieval system has pushed the boundaries of innovation and commercialization. New technological system like virtual shopping, online ordering has changed the dimensions of space and time. Environmental UK is characterised by conditions of extreme cold and mild hot weather. As far as geophysical conditions are concerned, none of them are of any serious threat for UK. Legal UK has legislations and policies of human resource, accounting and financial, anti-trust or anti competitive actions. So the business those are registered and have an authorized trade licenses are supposed to abide strictly to the rules and regulations. The retail industry has to abide by special laws like proper waste disposal and stringent quality check of food products and produces for insecticide and pesticide levels (Chrol, 2011). Analysis of internal business environment Internal business environment analysis is done with the help of SWOT analysis. Strength Tesco Plc is one of market leaders in UK as well as on global scale. The company has presence in more than 14 different international countries and plans are underway to open up new centres in different international countries (Clark and Mathur, 2011). The company is one of the first of its kind in UK to develop the Club cards. Club cards provide the company a unique way to create an effective information database of the customers. It has unique property strength with a portfolio consisting land banks in UK as well as in other countries. The retail arm of Tesco Plc is the most successful business unit which accounts for almost 50% of the revenue (Gina, 2013). Weakness Although Tesco is present in almost 14 different countries, but the greater part of the revenue still comes from Europe. The economic deluge has stalled the customer confidence. Thus, sales are dwindling and business in Europe is getting affected in a serious way (Das, Quelch and Swartz, 2000). The revenues from other international countries are not so praiseworthy either, with recent shutdowns in many international countries. The management who has boarded the deck of the company are facing dilemma in taking the right strategic decision for the company leading to loss of time and opportunity and not to mention the revenue (Gina, 2013). Tough conditions are way ahead by giants like Asda, Morrison and Walmart and Extra stores. With pressure on discretionary spending buyers cut down heavily on non food items. This has put the non food business part of Tesco in the harm’s way. Opportunity Tesco is gearing up for a major change over and revamping the stores and outlets. For that reason a lump sum amount of ?1bn is set aside. In order to improve the advertising facets, new advertising partners are appointed for the company. Some of the new advertising partners are Wieden and Kennedy. Threat The threats are from major competitors like ASDA, Morrison and Sainsbury. Most of the international outlets are facing different kinds of problems ranging from managerial lacklustre to operational inefficiency, for example Central Europe and South Korea and China (Gina, 2013). The huge investments made in Tesco may not start wielding results straightaway since Tesco is raring to exit USA. So Asia and Europe have to do the major job of generating the revenue. The conditions prevailing at both the locations are not really optimistic as of now (Flint, Woodruff and Gardial, 2002). Critical evaluation of strategic position The strategic position of Tesco is explained and discussed on the light of the effects of the internal and external factors in 3 specific levels which are corporate strategy level, business level strategy and operational level strategy. On corporate level there 3 different business units and one of them is Tesco Retail. For the past few years the management of Tesco has tried to find other means of diversifying the business. So the Tesco Mobile and Tesco bank are established (Garrick, 2011). As of now, among the three specific businesses heads the retail arm of Tesco is still generating the highest business revenue. The financial fiasco has put a dent on the prospects of the other business units. On business strategy level, Tesco has plans to revamp the outlets and stores and shut down or exit from certain international markets. The strategy to offer “value products” to the customers backfired (Gina, 2013). This is because of the reason that there are reports of poor quality of the food products and produces. The reduction on discretionary spending on non food items has exposed the non food business arm of Tesco to higher risk. The cost of borrowing fuel cost has increased substantially since the start of the Euro Zone crisis. This has increased the operational cost of Tesco (Ger, 2000). Although the revenue generation has not increase substantially, yet the company has to find ways to contain the effects on increased operational costs. One of the strategies applied by Tesco is overhauling the supply and distribution channel. Apart from that Tesco is also planning to reduce the overhead costs in both warehouse and transportation. Conclusion Tesco had elaborate plans to go ahead and spread its presence in diverse international markets. The company on the other hand did not prepare for the uncertainties in the future. In other words the company did very little to prepare a contingency plan. The resultant is the loss of business, loss of revenue and possible exit from major markets. Tesco did not realize that a major financial fiasco in the European markets would stunt the growth and development of the company all of a sudden. So the recommendations are to haul up the business both at home as well as in international markets. Reference List Bajaj, C., 2001. Foreign Collaborations: An innovative option. IIMB Management Review, 6(3), pp.142-145. Bonaccorsi, A. and Daraio, C., 2009. Age effects in scientific productivity — the case of the Italian national research council (cnr). Scientometrics, 5(8), pp. 49–90. Chrol, R. S., 2011. Evolution of the marketing organization: New forms for turbulent environments. Journal of Marketing, 5(5), pp. 77 – 93. Clark, T. and Mathur, L. L., 2011. Global myopia: Globalisation theory in international business. Journal of International Management, 2(4), pp. 361–372. Das, N., Quelch, J. and Swartz, G., 2000.Prepare your company for global pricing. Sloan Management Review, 42(1), pp. 61-70. Flint, D. J., Woodruff, R. B. and Gardial, S. F., 2002. Exploring the phenomenon of customers’ desired value change in a business-to-business context. Journal of Marketing, 6(6), pp. 102 – 117. Garrick, G., 2011. The evolution of organisational psychology in the 21st century. Journal of Organisational Research, 36(5), pp. 3-8. Ger, G. 2000. Localizing in the global village: Local firm competing in global markets. California Management Review, 4(5), pp. 64 – 83. Gina, G., 2013. Order from chaos: Who’s who in the republics. Journal of Strategic Marketing, 1(9), pp. 16–19. Read More