Environmental Audit - Report Example

ENVIRONMENTAL AUDIT Table of Contents Executive Summary 3 Introduction & Background of the Company 4 External Business Environment Analysis 5 PESTEL Analysis 5 Five Forces Analysis 7 Value Chain Analysis 8 Internal Business Environment Analysis 8 SWOT Analysis 8 Critical Evaluation of Company’s Strategic Position 10 Conclusion and Recommendations 11 References 13 Executive Summary The company chosen for study is Tesco Plc which is the biggest multinational general merchandise and grocery retailer in United Kingdom. The company is listed on London Stock Exchange and has over 6350 stores globally. It is also a constituent of FTSE 100 Index. The company is headquartered in Chestnut, Hertfordshire of England. Tesco is the market leader in grocery in UK, Malaysia, the Republic of Ireland and Thailand. It has stores in 14 countries across Europe, Asia and North America. Tesco has huge geographical diversification into areas like electronics, financial services, clothing, furniture, retailing of books, internet services, software, music downloads, DVD rental. Tesco Stores Ltd. is a subsidiary of Tesco PLC in United Kingdom. Global recession during 2007 to 2009 has substantial impact on the overall retail industry across the world. The external environment determines the outlook of industry and hence it is very important to analyze the external environment in order to formulate appropriate strategy for the organization. The macro-economic environment is evaluated using the PESTEL analysis that identifies key drivers that influence the company’s strategic decisions. The internal business environment is analysed on the basis of availability of resources that influence productivity, delivery and service. The objective of the assignment is to reveal the influence of both internal and external business environment on company’s current and future strategies (TESCO, 2013, pp.3-9). Introduction & Background of the Company The company chosen for study is Tesco Plc which is the biggest multinational general merchandise and grocery retailer in United Kingdom. The company operates in over 2,315 stores globally with over 1,875 stores in UK. It also has significant presence in North America, Asia and Europe. The total revenue of the company for the year ending 2013 was over £ 64.8 billion while net income after taxes was over £ 120 million. Tesco PLC was founded by Jack Cohen in 1919 as a group of market stalls. The company is listed on London Stock Exchange and has over 6350 stores globally. It is also a constituent of FTSE 100 Index. The company is headquartered in Chestnut, Hertfordshire of England (TESCO, 2013, pp.3-16). The company has huge geographical diversification into areas like clothing, furniture, electronics, financial services, retailing of books, internet services, software, music downloads, DVD rental, and so on. Tesco Stores Ltd is a subsidiary of Tesco PLC in United Kingdom. The company offers a wide range of personal finance services both offline and online. The relative position of Tesco’s market share with respect to other foremost players in the market is depicted as follows: (Source: t1ps.com, 2012) External Business Environment Analysis Global recession during 2007 to 2009 has substantial impact on the overall retail industry across the world. During the year 2012, retail growth was only 1.2% and it was the third lowest in the history retail industry of UK in last 40 years. Thus, the macro-economy significantly influences organizations’ strategy by influencing the surroundings of the industry. The external environment determines the outlook of industry and hence it is very important to analyze the external environment in order to formulate appropriate strategy for the organization (TESCO, 2013, pp.8-9). PESTEL Analysis The macro-economic environment is evaluated using the PESTEL analysis that identifies key drivers that influence the company’s strategic decisions. The objective of this analysis is to reveal the impact of various external factors upon a business as well as the industry (Rao and Sivaramakrishna, 2009, pp.115-116). Political - After the accession of China to WTO there has been a free flow of foreign trades into Chinese economy. The company Tesco Plc is expected to benefit from such removal of barriers for international business since the demography (over 1.3 billion population) of China is very attractive market. Economic - In the year 2008, the UK economy was declared under recession and spending power of customers fell due to unemployment. However, with the support of government in considerable reduction of interest rates helped reduce unemployment and consequently consumer spending experienced steady rise. Social - The social demography of UK reveals that aging section of population exceeds children that discourages food retailer since aged people tend to control diet. Also, it is evident that the frequency of older people visiting super markets is less compared to younger generations. These factors indicate that the company should strategically diversify its target market into other emerging economies. Technological - The most important macro environmental factor that influences operations, supply chain and logistics is the advancement in technology. With the technological advancement more people will use internet for shopping that will add value to business by reducing customers’ cost. Environmental - The Company maintains environment friendly packaging and re-useable bags that cuts operations cost and also creates goodwill of company and increases social responsibility image of company (Rana, 2007, pp.12-13). Legal - The operating cost of the company is expected to increase with the increase in minimum wage drawn by Low Pay Commission Report. Five Forces Analysis The Porter’s five forces framework determines the overall attractiveness of the industry and is hence a very important tool for external business environment analysis. Threat of substitute products – The threat of substitutes in retail market is low especially for food items. The company offers high quality products at lower prices that reduce the threat considerably. Threat of New Entrants – The threat of new entrant is low in the food and grocery retail sector that requires huge capital expenditure in order to establish brand recognition. The company has been able to establish its brand successfully in the market. Intensity of competition – There is very high intensity of competition in the grocery and food industry and the company faces stiff competition from companies such as Sainsbury’s, Morrison, Asda, and Waitrose. Bargaining power of buyers – Buyers’ bargaining power is relatively high since the switching cost from one brand to another is low. Bargaining power of suppliers – The bargaining power of suppliers is low due availability of competition and high switching cost (Bischoff, 2011, pp.3-5). Value Chain Analysis Porter’s value chain analysis has been designed for managers taking into account the systems and resources that identify the key activities in order to provide competitive advantage to a company to maximize its value by minimizing the costs. After analysing the Tesco’s primary activities and support activities it can be said that such activities has been able to add value since the company has maintained its leading position in market (Pearce, Robinson, and Mital, 2009, pp.178-179). Internal Business Environment Analysis The internal business environment is analysed on the basis of availability of resources that influence productivity, delivery and service. Thus, the resources and competences determine the dynamic capabilities of the organization. Again, the resources may be tangible (equipments, labour, and fund) or intangible (brand image, knowledge and skills). SWOT Analysis As mentioned earlier, Tesco is the largest grocery and food retailer of UK which also offers financial products and services. The SWOT analysis of the company is as follows: Strengths Increasing market share Significant online presence Brand value and reputation in market Diversified products and services Market leader of food and grocery sector in UK Weaknesses The operations are highly concentrated in UK and lacks geographic diversification Serial Mergers and Acquisitions have affected company’s profitability Company needs to reduce its debt and free cash for other operations Opportunities Diversification of products and services in emerging economies Diversification into non-food retail International growth Popularity of Tesco.com is increasing rapidly which recorded over 1 million customers at end of 2010 Threats Increasing competition in UK market could ignite price war International returns may fall Wal-Mart or Asda is slowly increasing market share Decline in income and rising unemployment may adversely affect consumer buying behaviour Identification of Opportunities in Market Critical Evaluation of Company’s Strategic Position On the basis of above discussion regarding internal and external business environment it can be said that the company focuses on the following strategic positions to broaden its business scope and achieve long term growth: Growth in UK market - Currently, Tesco is number one in UK market as compared to its major rivals like Sainsbury and Asda. It holds greater than 35% of market share as compared to Sainsbury and Asda who holds 15% of market share. International presence - Tesco operates in 14 countries across Europe, Asia and North America. In addition to grocery and food retail Tesco has huge geographical diversification into areas like electronics, financial services, clothing, furniture, retailing of books, internet services, software, music downloads, DVD rental. Tesco Stores Ltd. is a subsidiary of Tesco PLC in United Kingdom (MacLaurin, 2002, pp.9-11). Social service and responsibilities for communities - The core business of Tesco aims at providing good quality, safe, affordable and nutritious food and creating good careers and jobs. It has created thousands of jobs across its businesses. It has supported growth of suppliers in all its markets. It has been recognized by the Carbon Disclosure Project as the top retailer in world. Creator of Highly Valued Brands - It has differentiated its ranges clearly like its sub brand, Gourmet and Eat Well in Fresh & Easy and Goodness which is a nutritious and healthy product of children. Building strong management team to strengthen internal environment and add value to shareholders’ wealth - It has strengthened both Executive Committee and senior management teams. It has employed more than half a million people across the globe. In this ways, it is growing the teams around the world and is creating more value. Conclusion and Recommendations In the light of above discussion it may be concluded that Tesco continues to be the market leader in UK even during the financial crisis. The company has maintained strong leadership position within extremely turbulent retail sector by adopting differentiation and cost leadership strategies. The company has been able to achieve both strategies with the help of swift logistic and supply chain management along with strategic use of technology. Technology development has fuelled the dramatic shift of physical retail space to online retail market. The retail grocer companies have become more cost effective and they have been focusing on contusing cost reduction especially the operating costs. Internal control board of Tesco is responsible for effective running of the company by defining responsibilities and risk for each level of management. These assigned responsibilities are to be performed, controlled and managed by the internal controls management committee. The responsibility of internal audit department is reporting and reviewing the effectiveness of risk, maintaining the risk register, internal control of executive committee, facilitating risk control system across Europe, Asia and Tesco Bank. The core competencies of the company have also been found to be in-line with business environment that draws a positive outlook for the company in future (Hoo and Munusamy, 2008, pp.42-53). References TESCO, 2013. Tesco PLC Annual Report and Financial Statements 2013. [Pdf]. Available at: http://files.the-group.net/library/tesco/annualreport2013/pdfs/tesco_annual_report_2013.pdf. [Accessed on August 14, 2013]. Rana, D., 2007. A Case Study of Tesco Corporate Social Responsibility Practices through Analysis of Tesco Reports and Press Coverage during the years 2002 and 2007. [Pdf]. Available at: http://edissertations.nottingham.ac.uk/1508/1/07MADevinaRana.pdf. [Accessed on August 14, 2013]. MacLaurin, I., 2002. Tesco: Every Little Helps. [Pdf]. Available at: http://profesores.ie.edu/enrique_dans/TESCO/TESCO.pdf. [Accessed on August 14, 2013]. Hoo, W. C. and Munusamy, J., 2008. Relationship between Marketing Mix Strategy and Consumer Motive: An Empirical Study in Major Tesco Stores. [Pdf]. Available at: http://myais.fsktm.um.edu.my/8079/1/relationship_jayaraman.pdf. [Accessed on August 14, 2013]. Rao, C. A. and Sivaramakrishna, K., 2009. Strategic Management and Business Policy. New Delhi: Excel Books India. Pearce, J. A., Robinson, R. B. and Mital, A., 2009. Strategic Management. 10. New Delhi: Tata McGraw-Hill Education. Bischoff, A. L. (2011). Porter’s Value Chain and REA Analysis as an Accounting Information System. Germany: GRIN Verlag. Read More