Contemporary Business Environment of TESCO

Abstract – Contemporary Business Environment of TESCO

Economic environment involves all the issues which have an economic influence on business. Business need to understand economic and non-economic environment those influence business as per contemporary business environment of Tesco. Economic environment is quite complex issues it involves the economic system, economic policies, economic structure and organisation must be consider this factor in their business otherwise they cannot maximize their profit.  Non-economic environment consists of natural, cultural, political and legal environment it also has a huge impact on business success. Therefore, Contemporary Business Environment of TESCO should be evaluated. For multinational grocery store foreign currency, inflation, tariffs, international laws, all the aforementioned factors heavily affects the business activities. To successfully run any business, it has to focus on the natural available resources and also on demographic factors. And then the dependency on nature for their inventory, products like foods. On the other hand, they determined about who would be their valued customers, how will be their buying patterns, their buying power etc which falls into demographic factors. SWOT and PSETEL analysis is also designed for the sustainable analysis.

Economic environment involves all the issues which have an economic influence on business. Economic environment is quite complex issues it involves the economic system, economic policies, economic structure and organisation must be consider this factor in their business otherwise they cannot maximize their profit.  Non-economic environment consists of natural, cultural, political and legal environment it also has a huge impact on business success. For multinational grocery store foreign currency, inflation, tariffs, international laws, all the aforementioned factors heavily affects the business activities. To successfully run any business, it has to focus on the natural available resources and also on demographic factors. And then the dependency on nature for their inventory, products like foods. On the other hand, they determined about who would be their valued customers, how will be their buying patterns, their buying power etc which falls into demographic factors. SWOT and PSETEL analysis is also designed for the sustainable analysis.

1.0 Introduction

In the modern times of business economic and non-economic environment both plays a great roles in organisational success. Business need to understand economic and non-economic environment those influence business as per contemporary business environment of Tesco. Economic environment involves all the issues which have an economic influence on business. Economic environment is quite complex issues it involves the economic system, economic policies, economic structure and organisation must be consider this factor in their business otherwise they cannot maximize their profit.  Non-economic environment consists of natural, cultural, political and legal environment it also has a huge impact on business success. In this study author choose Tesco and in the following part of this study researcher will discuss economic and non-economic environmental factors and how it influence Tesco’s business (Hill, 2015).  

1.1 Company Background

Tesco is the number one largest supermarket in UK and they started their business in 1919. Currently Tesco is operating different countries including China, India, America and UK. Tesco is third largest retailer in the world based on their revenue. In UK Tesco owns more than 28.4% market share in retail industry. The main rival of Tesco is Sainsbury, Morrison and ASDA. Tesco is popular in UK market due to their cost leadership strategy but recently they are struggling to compete with Aldi and Lidl. Currently Tesco has more than 6,800 stores across the world. The operating revenue of Tesco in 2019 was £63,911 million (Tesco, 2019).

More than 450,000 people works for Tesco (Tesco overview, 2019). Tesco is not only involved in retail business they are providing banking services to their UK customers, they have their own mobile network and broadband facilities. Tesco classified their store format on based on geographic location they have Tesco extra, Tesco metro and Tesco express. Tesco invested a lot of money to develop their technology and innovate new products and services for their customers (Miner, 2015)

2.0 Literature review

2.1 Impact of Economic Environment on Business Behaviour

2.1.1 Economic System

Contemporary business environment of Tesco and the impact of Economic system as below:

• Impact of Tax System: Tax is deducted from individuals, companies by the government announcement to run its activities smoothly and for ensuring citizens welfare activities. Tax is classified into several ways like income tax, corporate tax –this is known as direct tax and vat is known as indirect tax. Raising the taxes on corporations leads to increase the price of the products or services. Moreover, there are export and import tax that also plays role in increasing the price of the products (Kempner, 2006).
• Impact of Foreign Currency: Lower rate in currency boosts up export as exporter gains competitive advantage over international rivals but it makes import costly. Difference in exchange rate helps generate profit for business (Kempner, 2006). Tesco can compete with its rivals offering higher quality products at lower prices through importing their products at lower prices. Moreover slightly change in foreign currency results in increasing the value of the currency. Thus it generates more profit or incurs cost (Sloman, 2016).
• Impact of Inflation: Inflation means increasing the value of prices. It increases the cost of living, products’ prices, have impact on loan, corporation etc (Kempner, 2006). It is known both beneficial and non beneficial to economy. It indicates GDP growth. If there is positive inflation, consumers have more money to buy more products. Thus company’s sale increases and generates more profit. However, company’s others cost can be increased due to inflation such as salary, utility bills etc (Sloman, 2016).
• Impact of International Trades: International trade helps generate more profit, increase resources, less wages, gaining the imported products in cheap price and thus being able to sell them in low prices at their home country. International trade also increases the standard of living, giving consumers a variety of choices, helps increase in employment (Satryo, 2018).

2.1.2 Economic Policies

Contemporary business environment of Tesco and the impact of Economic policies as below:

• Laws and Regulations: Government has authority to change the rules, regulations and laws concerning business. Likewise tax is determined by the government and it impacts the business directly. It raises the products price and other relevant things that may lead to increase or decrease the profit of the company. Secondly government sometimes amend or proposes new laws regarding employees, corporation and its stakeholders (Button, 2013). It also affects the business. Like government proposed that if any employee meets any kind of accident during his service he has to be paid 10% of his salary then company must pay the money. Moreover, government plays vital role in international trade by introducing new tariffs, export and import tax, or any other rules that directly or indirectly affect the overall business process.
• EU Laws: The countries include in EU enjoys some benefits in business such as less trade barriers in case of tariffs, quotas; guaranteed of fair competition, lower administration cost in case of trade, enjoys lower transportation cost etc (Button, 2013).
• Consumer Rights: It includes consumer has right to buy any products, services in exchange of money from the supplier and can return it if they find it unfit or low quality products without delay or less than 30 days from the purchasing date. Low quality products refers to good finish, durable, safe to use and must be free from minor defects. Therefore, business has to know such laws and must to comply with them while consumers purchase their products (Button, 2013)
• Price Monitoring policies: it is an analysis of the price of the competitors available in the market and compares their prices with our prices. It is done to evaluate one’s products’ price to check if it is higher or lower and reset the price if necessary to have competitive advantage over its rivals (Button, 2013). Moreover, government at times monitor the prices and amend the laws, and regulations accordingly.
  • Economic Conditions

Contemporary business environment of Tesco and the impact of Economic condition as below:

• Brexit Issues: As Britain is on the process of exiting from European Union, they are about to lose some benefits enjoyed previously. They have to pay extra price for their goods transportation, which they did not need to pay. They have to compete with trade barriers, tariffs, different kinds of taxes, etc (Che and Holden, 2002).
• Virus and Diseases: Sometimes virus and diseases can be barrier in business operation. Like government has crackdown in people movement, announced to quarantine that eventually is hampering business operation (Che and Holden, 2002)
• Impact of Tourism and Travel: people are gathering where has natural beauty to observe. There is a growth of extra people to meet the demand of them.  Therefore, businesses need to supply more to fulfil consumer’s demand of products and thus increase the revenue of suppliers (Che and Holden, 2002).
• Impact of international students and education: There is a growth of people due to providing opportunity to study in abroad. This also generates more people to the country that also increases consumers’ number in total and suppliers produce more products to fulfil their demands. 

Economic environment in business behaviour in favour of Tesco

Tesco is a multinational grocery store. It has been spreading its business operation across the world. As being multinational grocery store foreign currency, inflation, tariffs, international laws, all the aforementioned factors heavily affects the business activities. Moreover, as it is a British company Brexit issue has great impact on it as well.

2.2 Impact of Non-Economic environment on Business Behaviour

2.2.1 Demographic Environment

Contemporary business environment of Tesco and the impact of demographic environment as below:

• Gender, age and Religion: These three elements greatly impact the business operation. Female buying pattern is different from male buying pattern. Like female is more home centric than male. They buy household ingredients, foods, cosmetics etc while male prefers gadgets, clothes more. Secondly age is also an important factor to consider. People buy products and services based on age too. For instance, if consumers are infant they need infant products such as infant suitable milk, diapers. Lastly, religion is another element to consider. Religion gives some restriction on food, behaviour and on clothes. Like some people has restriction on alcohol so business including such products cannot be run around such community (Frączek and Pater, 2018).
• Language: A specific group of people who share same culture, values, feelings and share same language to communicate to each other. People can easily identify other person’s culture via language he speaks. Language is used to communicate easily to deliver his desire, demand (Frączek and Pater, 2018).
• Income, Purchasing power and Occupation: Generally consumers engage in some jobs entitled to occupation to get salary, wages or for income purpose for living and from this very occupation he earns that leads to purchasing power. Therefore, to buy any products from market one has to have buying capacity that can be obtained only through gaining an occupation that yields an income (Frączek and Pater, 2018).

2.2.2 Natural Environment

Contemporary business environment of Tesco and the impact of natural environment as below:

• Food Resources:  Nature supplies necessary ingredients to eat. Grains, foods, fruits all are found from nature. People cannot survive without food, water. Therefore, for their existence human are dependent on natural environment. Food supply can be damaged heavily due to human’s negligence towards environment (William 2017)..
• Weather and Climate:  weather is the short state of atmosphere of a particular area and time. It includes rain, wind, sunshine etc. It can be daily, monthly, yearly. Climate is the longest state of atmosphere of a particular area and time. It is generally 5 years, 10 years of state of rain, wind, humidity, precipitation etc. Weather and climate both are imperative elements of nature (William 2017)..
• Topographic factors: The physical factors on topography affects a particular place is called topographic factors. It is known as indirect features that also affect the growth of orgasm living in the climate and environment. Topographic factors are river, hills, swamps, valleys, coastal area, rain etc. this also affects the business operation (William 2017).
• Water, Trees and Oil: The elements are also extracted from nature. Water is vital for human for their survival. None can live without water. Trees help people with shelter, wood for burning, pencils are produced from it as well. Oil can be classified into two categories. One is for consuming purpose, another is non-consuming purpose such as petrol, diesel etc (William 2017)..

2.2.3 Organizational culture

Contemporary business environment of Tesco and the impact of organizational culture as below:

• Norms and Values: Norms and values are connected with religion and culture. It shapes the behaviour, insights, and opinions of human (Caprotti, 2012).
• Approach to customer: It is a move about how to interact with customers, how to approach to them with their desirable products.  Firstly company should figure out its prospect client, study their demand, needs and deliver their products. Here appropriate marketing strategies can play amazing role.
• Dress code and Attire: Dress code varies person-to-person, culture-to-culture, and country-to-country. Dress code and attire shows the business operation culture like if the business is semi formal, formal or informal.
• Skill and expertise: Skill and expertise refers to the capacity an employee acquires and utilizes it in the company’s business operation (Caprotti, 2012).

Non-Economic environment in business behaviour in favour of Tesco

To successfully run any business, it has to focus on the natural available resources and also on demographic factors. Tesco is a grocery shop that deals with foods, gadgets, clothes, drinks etc. Tesco has to depend on nature for their inventory, products like foods. On the other hand, they determined about who would be their valued customers, how will be their buying patterns, their buying power etc which falls into demographic factors.

Analysis and discussion

For this study researcher choose the Tesco as their case company and the reason is Tesco is the largest super market in United Kingdom. In the above discussion researcher discuss the different literature about economic and non-economic environment and how it affects the Tesco business. In this part of study researcher discuss the SWOT and PESTEL analysis of Tesco.

SWOT analysis

Most of the strategic manager uses this SWOT tool to examine the company’s strengths, weakness, opportunity and threats.

Strengths:

• Tesco is the number 1 retailer in UK in terms of their market share in UK retail market (Tesco, 2019).
• Tesco started their business in 1919 and since that period they are successful so they have huge experience about retail market;
• Tesco is market leader in UK because of their cost leadership strategy;
• Tesco has a millions of loyal customers across the world including China, India, Poland, Ireland etc.
• Tesco introduced Club card 1^st in UK market and after that they are using their club card information to formulate their marketing strategy.
• Tesco has a very good reputation in market place (Gordienko, Shevchenko and Shevchenko, 2019).

Weakness:

Tesco has many success stories along with that they have some weakness as well-

• Tesco is facing too much competitive pressures from their competitors;
• UK retail customers easily switch their brands because almost all the retailers are selling same products; (Gordienko, Shevchenko and Shevchenko, 2019)

Opportunity:

• Tesco is number 1 retailer in UK and they have strong financial ability and high brand image so they can use these things and expand their market in different international market;
• They can increase their banking operation in UK;
• Advertising more to attract more customers towards their mobile network (Gordienko, Shevchenko and Shevchenko, 2019);

Threats

• Too much competitive pressures in UK grocery market and their rivals are trying their best to increase their market share;
• Tesco is popular for their cost leadership but now Aldi and Lidl are two discounters are offering products cheaper than Tesco which is a real threat for Tesco (Gordienko, Shevchenko and Shevchenko, 2019).

PESTEL analysis

PESTEL analysis is a popular concept introduced by the business professionals to track their environment where they are operating their business. This analysis helps every types of business to understand their macro environment and formulate their business strategy. PESTEL stands for (Strangmueller, 2011).

• P- Political
• E-Economic
• S-Social
• T-Technological
• E-Environmental
• L-Legal 

Political: Political factors have a great impact on every business decision and their operation. Organisation cannot control the political factors of a country. Political factors that influence the Tesco business in United Kingdom are- UK corporate tax, labour law, democracy, corruption, political stability etc. UK political environment is favourable for the Tesco because UK government always provide different facility to Tesco because they are big player in UK market. UK tax rate is quite high which negatively influence Tesco net profit (Strangmueller, 2011).

Economic: Economic environment represents the countries interest rate against the loan, currency exchange rate, inflation rate, unemployment rate etc. Tesco is the largest retailer in UK because of this most of the UK banks are willing to pay them loan in low interest rate which is good side for Tesco. Consumer buying power is comparatively high in UK only alarming issue right now is its inflation rate because inflation is increasing gradually. Unemployment rate is also low in UK (Vernon, 2011).

Social: Social environment also influence Tesco business. In UK social factors are- population growth rate, education, health consciousness, cultural values, beliefs, religion, health and safety etc. All of this factors impact the business and Tesco need to consider these factors. For example: Culture influence Tesco business. In London the number of European people is increasing a lot so to attract those people and to make sales Tesco added European section where they store all the European items. Another example of social factor is health awareness most of the educated customers are health conscious and they started buying organic foods and Tesco respond their needs and sell almost all types of organic foods in their store (Kampanje, 2012). 

Technological: Technological environment also very important for every type business. Tesco is enjoying the advance technological facility of UK. Tesco introduced all the modern facility in their business operation which helps them to develop their customer services and reduces their operating costs.

Environmental: Environmental factors getting more importance day by day. Due to weather change, climate change impact the tourism and farming industry. Tesco is not affected because of the environmental factors but still Tesco maintain all the environmental laws of UK and participate in different corporate social responsibility (Vernon, 2011). 

Legal: Legal environment represents the countries legislation or different law such as- discrimination law, consumer protection law, copy righted law, health and safety law etc. These factors affect the business operation and if any company fail to comply with these laws they may face different penalty. Tesco obey all the legislation of UK and try their best to maintain this, which develops their image in eye of UK government (Kampanje, 2012).

Conclusion

Economic factors such as money, monetary policy, bank, tax, foreign currency, laws and so on all are integral part to run the business operation smoothly. Without these factors it is impossible to even start a business let alone continuing it (Wood M. 2020). On the other hand, non-economic factors like nature, demographic factors are important as well. Business materials, products, their inventories all are coming from nature itself. Demographic factor determines consumers’ types, their buying pattern and capacity. All these factors are interrelated. It is showing that all are influencing business operation directly and indirectly and plays vital role in help survive the operation for welfare of the consumers, environment and government and contributing in country’s economy (Caprotti, 2012).

References

Button, K., 2013. Transport, The Environment, And Economic Policy. Aldershot, Hants: Elgar.

Caprotti, F., 2012. Environment, Business and the Firm. Geography Compass, 6(3), pp.163-174.

Che, D. and Holden, A., 2002. Environment and Tourism. Economic Geography, 78(1), p.92.

Frączek, P. and Pater, P., 2018. Non-Economic Factors Affecting Employment in Non-Governmental Organizations. Economic and Regional Studies / Studia Ekonomiczne i Regionalne, 11(3), pp.129-147.

Gordienko, V., Shevchenko, N. and Shevchenko, D., 2019. SWOT-ANALYSIS OF THE PROSPECTS FOR AGRICULTURAL DEVELOPMENT IN UKRAINE. Scientific opinion: Economics and Management, (1(63).

Hill, M., 2015. Organizational Behavior. McGraw-Hill College.

ITOH, R., 2009. ECONOMIC DEVELOPMENT AND NON-MONOTONIC SPATIAL TRANSITIONS. Japanese Economic Review, 61(2), pp.234-251.

Kampanje, B., 2012. Pestel Analysis of Malawi’s Non-Life Insurance Industry. SSRN Electronic Journal,.

Kempner, T., 2006. The Economic Environment. 8th ed. [Henley-on-Thames]: [Administrative Staff College, Henley].

Miner, J., 2015. Organizational Behavior. 1st ed. London: Routledge.

Satryo, C. (2018). Free Trade Intervention: Political-Economic Intervention on Global Business Environment. Asia Pacific Management and Business Application, 007(01), pp.31–44.

Sloman, J. (2016). Economics and the business environment. Harlow: Prentice Hall/Pearson Education.

Strangmueller, M., 2018. A PESTEL Analysis Of The Company. 1st ed. pp.96-102.

Vernon, R. and Wells, L.T. (2011). The economic environment of international business. Englewood Cliffs (N.J.): Prentice Hall.

Written by

Md. Shadequr Rahaman

Email: [email protected]