PESTLE analysis of TESCO

Business environment has changed considerably and hence it has become essential for the firms to manage their operations as per this changing business environment. TESCO being one of the biggest super market firms in United Kingdom had to face lot of challenges due to the change in the factors affecting their business (Pearson, et al 2011). Tesco is having lots of resources and are highly capable of dealing with the changing business environment. All these resources and the changing business environment are having impact on the decisions that is made by the firm. This report will highlight the change in the business environment of Tesco by analysing different factors.

Today’s business environment has become very much dynamic hence it has become essential for the organizations to understand the factors that are affecting their business. Some of the factors that need to be analyzed are specified by the PESTLE strategic tool:

• Political: There is significant change in the political environment of UK and these changes can be reflected back in the decisions that are made by the government. The decision such as Brexit will have long term impact on the big retailers like Tesco. This is because they have lot of suppliers from the other parts of the EU and hence maintaining same kind of relations with them (Kew and Stredwick, 2017). Apart from this there were no trade barriers among the countries in the EU previously but after the enforcement of Brexit Tesco might face challenges in doing cross border trades.
• Economical: The biggest challenge for the company is posed by this factor. There is significant downfall in the economic growth of the whole European region and hence it is reducing the purchasing power of the people. It has also affected the demand in the market. It was one of the most significant reasons for British Government enforcing Brexit. The reduction in the purchasing behavior of the people will have direct impact on the sales of the company. Even after being high per-capita income people are reducing their expenditure (Hamilton and Webster, 2018). Investors are also not willing to invest in new projects and hence could be a challenge to the growth of Tesco.
• Social: Society has changed and so are their demands. After a decade of bad phase after 2009’s recession, significant changes can be noticed in the purchasing capacity of the people. They are restricting themselves from opening their pockets for expenditure (Hoskin, 2011). Apart from this, there is increase in the number of unemployed people which is reducing their target segment’s intention to purchase.
• Technological: Higher numbers of technological advancements are going on in the retail industry especially in terms of the way in which people are making the purchase. People are moving towards online shopping and hence the brick and mortar type of business is facing challenges. In the coming time, Tesco will have to invest more on the e-commerce platforms so as to remain in the competition (Dauvergne and Lister, 2012). Technology is also giving the advantage to the small business enterprises and hence they are also challenging the business of Tesco at the local levels.
• Legal: Legalities in UK has changed considerably and these changes had an impact not only on the ways of doing business but also on the performance of the firms. The consumer and employee related laws have strengthened and this has made the firms to rethink about the quality of the products and service they deliver to their customers as well as the ways in which they manage their human resource management. Tesco needs to comply with all these rules and regulations so as to ensure that they may not face any legal challenges.
• Environmental: The rules and regulations regarding the environmental concerns have increased. Tesco needs to manage their business in an environment-friendly manner. Green supply chain has become the necessity of Tesco. They also need to focus more on the way waste is management as government has become very much strict on the waste management of different organizations.

In the changing business environment, it has become very much essential for Tesco to understand the internal environment. This must be done on the basis of analyzing the resources and capabilities of the firm. It is crucial that company analyses their strengths so as to grab the opportunities available with them. Apart from this weaknesses needs to be analyzed so as to find the threats that they can face in the future. SWOT analysis for the firm is as follows:

Strengths

Recently, Tesco has won many prizes in the retail excellence, customer satisfaction as well as other shopping experience.

It is one of the largest and most successful supermarkets in the world.

They have a high amount of cash reserves as well as other type of infrastructure which gives them support in all the type economic cycle (Christopher and Peck, 2012).

It is a big brand name having global recognition especially in terms of quality products that it offers.

They have used technologically advanced mediums so as to improve their operational efficiency.

All these strengths are helpful in balancing their business in the changing political, legal and technological environment.

Weakness

Some of their subsidiaries are not performing well like their finance profits have lowered down to significant levels.

They lacked in terms of research and hence due to this they have lost their business in some of the countries.

They have not adjusted their inventory and hence cost of inventory is high which is not suitable in the modern day business (Dowling and Moran, 2012).

Company has major part of their business in European region and they not spent money on increasing their business in the new developing nations.

All these weaknesses are dangerous in terms of changing social, economic and environmental factors.

Opportunities

• They have opportunity to make strategic bounds with other suppliers or big brands so as to offer more numbers of products to the consumers.
• The European countries where they are not performing well, they can easily go into the joint ventures (Beaumont, WHITAKER and PEDERSEN, 2013).
• They have chance to improve their business in online markets.
• They also have opportunities in the private level markets.
• They can expand their business in the emerging markets.

Threats

• Credit crisis and economic recession has threatened the market share of Tesco.
• Many retail giants are coming up which will further increase price war as well as they also have innovative technology to make their business model more efficient (Page, 2014).
• Rising cost of raw materials along with increasing labour cost is a threat to their profitability.

All these factors have effect on the decision making process of the company. The changing political and economic environment within the country is going to impact on the investment decisions made by the firm. The changing technological environment will have impact on the way decisions are made. For example decisions will be made based on the data that is collected through different online mediums by taking the help of data analytics. Reduction in the purchasing capacity of the people will make the decision makers to think about the focusing on increasing the product range as well as reducing the prices (Peck, et al., 2013). Legal and environmental factors are going to make the decision making process more ethical and consumer oriented. Their higher cash reserve will help them in making decision process more innovative so that innovative decisions could be made. Citing their weakness, they will have to think about the investing in new countries hence decisions will be taken involving more numbers of people from the developing nations also. Their threats have forced them to make more decision making process more democratic.

Conclusion

From the above based report, it can be concluded that externals environment of Tesco is now becoming full of challenges especially in terms of political, economic and social terms. Their strengths are helpful for dealing with the challenges that are external environment is forcing. It is going to have effect on the decision making process as company will try to bring more number of people in the decision making body so as to make innovative decisions.

References

Beaumont, J.R., WHITAKER, B. and PEDERSEN, L., 2013. Managing the environment: Business opportunity and responsibility. Elsevier.

Christopher, M. and Peck, H., 2012. Marketing logistics. Routledge.

Dauvergne, P. and Lister, J., 2012. Big brand sustainability: Governance prospects and environmental limits. Global Environmental Change, 22(1), pp.36-45.

Dowling, G. and Moran, P., 2012. Corporate reputations: Built in or bolted on?. California Management Review, 54(2), pp.25-42.

Hamilton, L. and Webster, P., 2018. The international business environment. Oxford University Press.

Hoskin, P., 2011. Why business needs to green the supply chain. University of Auckland Business Review, 13(1), p.16.

Kew, J. and Stredwick, J., 2017. Business environment: managing in a strategic context. Kogan Page Publishers.

Page, M., 2014. Business models as a basis for regulation of financial reporting. Journal of Management & Governance, 18(3), pp.683-695.

Pearson, D., Henryks, J., Trott, A., Jones, P., Parker, G., Dumaresq, D. and Dyball, R., 2011. Local food: understanding consumer motivations in innovative retail formats. British Food Journal, 113(7), pp.886-899.

Peck, H., Christopher, M., Clark, M. and Payne, A., 2013. Relationship marketing. Routledge.