An Analysis Of Tesco’s Macro Environment Impact And Competitive Strategy

Macro Environmental Impact on Tesco

Tesco Plc, trading as Tesco is British international groceries and general commodities retailer. Tesco is considered to be the third largest store in the world in terms of profits and ninth largest in terms of revenues in the world. The company is offering the variety of products which include electronics, internet services, clothing, electronics, toys and software. The key competitors of the business in the international market are Wall mart and most of the competitors are national which includes Sainsbury, Morison’s etc. The company has been found with the market share of 35% in the UK market where Tesco is considering the leading and fast growing company while operating with the proper strategy. Tesco Plc is operating in more than 12 Countries which include Asia, Europe and others (Steve Robbins, 2018).

The report below provides an insight of company in Supermarket that is Tesco while emphasising its external and internal environment analysis.  The impact of macro environment factors has been discussed and their influence of the business. The internal environment also includes the stakeholder’s analysis and the SWOT analysis of the Tesco in which all the opportunities and threats business have been highlighted. The report also includes the discussion related to the capabilities of the Tesco using the frameworks of ansoff Matrix. All the structure and skill set of the company has been discussed in the report with e view to have the deeper understanding. This will help to determine the internal; environment to assesses the strengths and weakness of the company (The Telegraph, 2016).

The report discusses Tesco competitive forces which have the competitive advantage in the market. Use of Porter’s Five Forces model has been used to analyse the Tesco position in the market. These strategies are used in the report to have the competitive advantage in the market. This is done to position the corporation in the market that where the company is standing based on the outcomes. The report discusses the details regarding the strategic management followed in the organisation (Shewmake, Cohen, Stern and Vandenbergh, 2015).

Vision and mission

Tesco’s vision has elements which describe the sort of company it aspires to be:

• Required and wanted about all the corners of the world.
• Increasing business with lots of chances.
• Modern, advanced and full of thoughts.
• Motivate, inspire, earning trust, faith and devotion from customers and communities (Tesco Plc, 2018a).

• Offering consumer the best values for money and in the inexpensive prices.
• Convention the needs of the customer by analyzing the market and its nature.
• Making innovation in product quality, choice, services and storage facilities.
• Progressive returns to the shareholders by investing their money in right place.
• Develop the individual talent complete sound management and training practices.
• Good working association with the suppliers for the long term.
• Participating in the formulation of national food industry policies on key issues such as health, nutrition, hygiene, safety and animal welfare.
• Support the welfare of the community and protection of the environment (Tesco Plc, 2018b).

The macro environment of Tesco has affected the business working. To analyze the macro factors of the environment, Pestle analysis and stakeholder analysis is done. 

Political factors

Tesco is working in more than 12 countries and is exposed to the various political risks as all the country has its own political factors. These political factors can affect the working of the business. These factors include the political instability, impending legislation in the country. For example, import duty on good can affect the company (Woerner and Wixom, 2015). The biggest risk factor to Tesco is the EU referendum for investors. The tax on large supermarkets is known as the Tesco tax which was peoples by the local council. This affects the prices and UK refused this initiative to avoid the price hike. Such initiative is to avoid by the company as it reflects the negative image.

Porter’s Five Forces Analysis of Tesco

Economic factors

Economic factors include the labour cost, unemployment rates. One of the factors of the economy which affects the workings of the Tesco is labor cost. The annual wage bill is amounting to around 4.5 billion GBP. In the year 2018, UK minimum wage rate has been increased by the 4.4% of age group of 25 years or more. This has cost Tesco millions of pounds in the UK. There are many other factors which affect the Tesco which includes the cost and price. Increase in the wage rate and the other factors increase the cost of the company which decreases the profit of Tesco (Teece, 2010).

Social Factors

Social factors are equally important to recognize the standard the company is. The shopping trends of the individuals are changing rapidly. Most of the person in Uk are indulge in their jobs and want the flexibility in shopping and delivery too. Tesco has analyzed the needs and requirements of its customer and provide their services accordingly. For example, the company is offering the easy purchases, return and delivery policy to its customers.

Technological factors

The technology used by the Tesco is considered to be the updated in the whole supermarket t of UK. A few years ago, Tesco is facing the issues of poor customer experience on the website so to overcome the issue; the company has implemented new technology in the business. Tesco has introduced the RFID technology to increase in-store experience for the customers. In this technology, the counting of the stock is done automatically without any manual labor and it removes after the sales automatically. This not only helps the company and its customer but also help its suppliers, as they come to know when the stock is over in the company (Sprengel and Busch, 2011).

Environmental issue

Many companies are facing the problem of the environment from the government side. Tesco has encouraged its company to do the work which is beneficial for the society. Tesco has introduced the fuel saving techniques and also collect the plate static bags from customers and recycle them. Tesco is also finding to use the renewable resources in its business and also focusing on minimizing the carbon footprints (Marketing Tutor, 2018).

Legal Factors

All the business has to comply with the legal rules and regulations of the business. Tesco has implemented a special law for the workers in which strict action are taken if anyone founds with the fraudulent and misleading activities. Tesco is conducting its operations in accordance with the Food Retailing Commission (FRC) code of practice (Pestle analysis, 2014).

Capabilities and SWOT Analysis of Tesco

Stakeholder analysis is an important technique for identifying the stakeholder and their needs from the company. This analysis is done to identify the key stakeholders who have invested their interest and money in the company.

Meet their needs

These stakeholders are engaged in the business meeting done by the Tesco and have an interesting area in the workings of the company. In this phase, the stakeholder’s interest is been at the increasing stage and wants to become the key player in the company (Jones and Livingstone, 2015).

Key Player

In this phase, the stakeholders of Tesco, try to involve themselves in the governance structure and want to be a part of the decision making in the company. As they have invested their amount in the company, so they try to know where the company is investing their amount and how much return they will get from the company.

Least Important

In this quadrant, all those stakeholders’ lies which are least important about company working and Tesco is giving only the general information to these kinds of stakeholders. This information is given through males, newsletter websites (Reilly, 2015).

Show Consideration

In this quadrant, Stakeholders shows the interest in the workings of the Tesco. These stakeholders have their own goodwill and reputation in the market. These stakeholders include the major holding of the shareholders.

SWOT analysis

Strengths

The wide and diversified Customer base

Tesco has its varied and expanded customer base as the company is operating and providing its products and services in more than 400 countries. The company is not found dependent on the single section of the business for its revenues.

Strong Product Portfolio

Tesco has the sturdy portfolio mainly in the top energy section which is selling the apparatus and provides services across segments throughout all its stores. Tesco is offering the 6 model system in its operations which are based on its client demand (Marketing91, 2018).

Patents and its license agreements

Tesco is holding the various copyrights and license agreement to develop the company in the country with the new technology. Strong portfolio makes the business to survive for long and able to attract the other companies to invest (Business Teacher, 2017).

Weakness

Infringement Controversies

Tesco has faced the controversy from the various companies which include Varco and Weatherford for violating some of their patents. If any of the claims prove to be the right then it will have the impact on the business in Tesco and its image too.

Stakeholder Analysis of Tesco

Opportunities

Strategic Acquisitions

The company can invest in the strategic acquisitions to increase its process and business operations in the market. The save and technology can be saved to build the technology itself, Tesco is looking out for acquiring the companies (Johnson, 2016). 

Non-food sales

Tesco can focus to have the increase in the non-food sales. It will not only enlarge the market area for the consumer but also expand the area for the food product also.

Threats

Global Economic Environment

The biggest threat to the company is the threat of the environment in which the business is operating its operations. There are so many uncertainties available in the global environment as well as the economic situation (Scarborough, 2016). 

Rising Competitors

Tesco has various rising competitors in the market which can grab the large market by offering the unique product at very low cost to the customer. In that customer is getting then maximum satisfaction. Rise in the raw cost of raw material from shifting to food to non-food that will impact the profit margins (Chang, 2016). 

From the analysis it can be concluded that Tesco has a larger competitive advantage in case of its internal strengths and external opportunities. The company is expanding its business operation across the globe.

Value Chain Analysis

Value chain analysis is the analysis beneficial instrument for increasing the general worth of the organisation while seeing all the weakness and strengths of the organisation. Value chain is used to relation with the key worth and their edge with the provision of activities performed in the organization. It will help to enhance the total value and assets of the organisation. Here is the value chain of the Tesco:

Inbound Logistics

To have the inbound logistics in the business, Tesco should have the strong bargaining power from the suppliers. From these, the low-cost products can be taken from the suppliers. The company is using its leading market position and economy of scale in its business. On the other hand, Tesco has started upgrading its or, during system and have taken the approval of vendor lists (Cummings and Angwin, 2011).

Operation Management

In this management day to day working of the business is taken into consideration, on. Tesco has a monopoly over the suppliers to have the strong supply chain management in the business. On another hand, Tesco is able to control over its cost using the economies of scale through the efficient use of It in the business. The company has found newly financed in 80 million pounds for flowing its business actions.

Strategic Management of Tesco

Outbound logistics

Outbound logistics refers to the supply chain outside the organization. Tesco has found to have the relationship with both the online and offline food retail segments. The company has developed the different stores in different regions to give the customer the maximum satisfaction (Schuler, Jackson and Tarique, 2011).

Marketing and sales

In order to upsurge revenues and sales of the company, Tesco finds it suitable to invest more in the marketing and promotion of brands and services they are offering in the market. It will enhance the large market for the company. The efficient marketing strategy is used by the Tesco in which the Tesco club has been introduced. This is done using the evidence technology to bring more clients than the competitors (Shewmake, Cohen, Stern and Vandenbergh, 2015).

Tesco is operating the commercial actions emphasized on the twin approach to be the cost leaders as well as differentiation in the design of the product offered. From this strategy, Tesco wants to grab the large market in the world where they have the stores. Tesco has been able to bring the more expanded products for the customer and making the value as associated to its competitors (Barnes, 2011).

Analytical tools and models of analysis

Porter’s Five Forces Model

Bargaining power of Buyers

Nowadays al the customers are relatively high in demand due to the low switching power available to the buyer present in the market. The Tesco is offering the low-cost product to its product in the whole supermarket. A wide choice of food in the retailer store gives the consumer convenience that a lot of choose from the many options available. According to the survey done in the year 2017, it has been evident that UK consumers are brand loyal and they are stuck to the brand which they are taking from the years (Nenycz-Thiel, 2011).

Bargaining power of Suppliers

Suppliers in the supermarket have less negotiating power due to the existence of many suppliers in the market. This will give the company like Tesco to have the dominance over their suppliers as there are many substitutes of suppliers are present in the markets which are offering the product at lower cost. From this fear, the sellers do not have the volume to bargain-basement in the products offered by them to the Tesco (Schuler, Jackson and Tarique, 2011).

The threat of new entry

There are always remaining threats of entry of new players or competitors in the market. In the UK supermarket, the threat of entry is high due to the relative ease with which any firm can enter food retailing. Although the market of UK supermarket is dominated by the Big 4 and majority of the profits from the sector goes to them only. The investment required in building the capacity equal to the big 4 to the new players is so high which will impossible to do in the market (Research Methodology, 2016). 

Conclusion

Threat of Substitutes

All the company irrespective of their nature and size are affected by the availability of its substitutes as it will affect the demand and supply of the existing product. The threat for the grocery market is very low for food items because food substitutes would be the products which the consumer consumes from anywhere (Yeung and Coe, 2015).

Competitive Rivalry

 Competition found in the UK food market is high which make the Tesco working difficult. The intensity of the rivalry incompletion in regard to the retail industry is found to be high as Sainsbury. Tesco is giving a neck to neck competition to its competitors. But from the survey, it was conveyed that the sales of Sainsbury have been slowed down. This will be the advantage to the Tesco and company in a position n to grab the opportunity. On the other hand, Aldi’s sales have even seen a huge climb which improves the competition in UK market. Tesco both have the opportunity and threat available in the market (Ward, 2016). 

Market Penetration

Tesco has extended its products and service range to the UK market at large, which help the company to increase their revenues as well as sales. It is notable that the sale of the Tesco has been decreasing in the past few years due to the environmental issues. To restore its market and image, company start restoring the market with the great speed (Cecere and Corrocher, 2011).

New product development

There are risks associated with introducing the new product in UK market. If a new product is introduced to the market it should be done with the proper research and utter care as it brings the huge loses or profits to the company. Tesco can rely on the expansion of non-food item in the market, bringing new financial services to regain the interest of the consumer.

New market development

Tesco should consider on the expanding in the new market as it offers the business to have business in the large market. Tesco should consider expanding to new markets like India, China, Japan and so on. These countries have the market to accept the Tesco with all its products and services offered by it. It will increase the revenues and sales of the company while having the large customer base. For the new development of the market, Tesco is considered to be the start of the unique stores in the countries of Asia (Evans, 2011).

Diversification

The diversification includes diversifying the activities in the different region. This strategy is considered to be risky in nature. In this strategy new market while offering the new product is there this will also require a high amount of investment by the Tesco. Tesco has done the diversification of coffee shops to the Asian market which is running very well. The company also has made the diversification in variety y of products and services to the other Asian countries and gain the large market share (Cummings and Angwin, 2011).

Generic Strategy

The generic strategy is characterized by the individual retailers in response to the industrial nature and structure. A company like Tesco, which is considered to be the giant retailers, opt for the sustainable competitive advantage in the market developed by Porter.

Cost Leadership

Cost leadership is considered to be the strategy in which Tesco is offering the product at low cost in the sector. From this, Tesco can able to grab the large market share while offering the variety of goods and services at low cost. This will give the company, a competitive advantage. This strategy is used by the Tesco to have the control over the operating and working cost of the company (Armstrong, 2015).

Differentiation Strategy

Another strike energy can be used by Tesco is the differentiation strategy.  In this strategy, Tesco is trying to offer the products and services with the innovation and uniqueness that will be valued by the customer. This strategy will help the company to have the brand loyalty among them, customers. For using the strategy of differentiation, Tesco can use the updated technology, special features, increase in the product offerings and customer service (Armstrong, Kotler,  Harker and Brennan, 2015). 

Focus strategy

Focus strategy is the strategy which can either be the cost leadership or differentiation strategy. According to the Porter, neither the cost leadership plan nor a differentiation strategy is possible for an organization. Tesco falls under the cost leadership category where it stands in the market to be the low-cost service provider in the industry. To be a cost leader in the market, the investment required in producing technology and high-quality staff. Tesco’s prices are the lowermost as related to its competitors like Sainsbury and Morrison’s and very close to Asda (Olson, Slatethe r and Hult, 2005).

From the above discussion of strategy, it can be concluded that Tesco should use the combination of strategy as it will bring more market share, revenues to the company.    

Hybrid strategy

Hybrid strategy is beneficial for the Tesco as the company is accomplishing the high standard of market share in the UK. This is done to achieve the higher volume goal by the company which was able to achieve due to its competitors. That means their margins are still superior as compared to their competitors due to the use of economies of scale in its business. Another advantage Tesco has using the hybrid strategy is that it can be used as the entry strategy in the market where they have established a number of competitors. Tesco can adopt this strategy in the market when they are expanding their business globally. It permits them to goal entrants and enters the marketplace in diverse geographical areas while offering the high-quality products at a very low price. This will make the company have the large loyal customer in the market (Laffy and Walters, 2016). 

Diversification

Diversification strategy used by the Tesco is found to be beneficial for the company as it has more chances to explore in the area. This exploration makes the business successful and able to earn more revenues from this. Recently Tesco has expanded its marketing mix into the similar interest if their generic customer base. The company has launched the range of services including how-to-videos, TV and satellite installation and product recommendations. However, Tesco has trained 1000 staffs especially for the 200 Tesco extra stores and give them the superior quality of the training to understand the needs and requirement of the customer. As their current marketplace becomes extra saturated, diversification seems to be a suitable choice (Qazi and Sher, 2016).

Vertical/horizontal integration

Tesco is recently forward to have the integration in the business so that the expansion in the business is done. To have the competitive advantage in the market, Tesco has agreed to take over the business of wholesaler and logistics business booker Group. Vertical integration is the integration in which the business acquires the additional business activities to gain the large market. This will be done at the similar level of the value chain in like or diverse industries. This can be done by the Tesco by using the various expansions in other countries. This will not only enable the company to grow and earn more but also have the large span of control in the wholesale market. On the other hand, the company is also allowing the vertical integration in which another business is come into existence by Tesco. Involvement of bookstores, financial services in the business makes the expansion strategy of the business successful (Yoder, Visich and Rustambekov, 2016).

Conclusion

From the above discussion, it can be concluded that the success of the Tesco show how distant the effect of branding and active service delivery can come in affecting beyond wallowing the one’s logo on the billboard. Tesco is operating, in the highly competitive market and competitive industry where there are many hulks available in the industry. The company has used many strategies which gives the company a competitive advantage in the market and make the company unique from its competitors. The organization has many opportunities and strengths that helped the organization to remain in the business. The opportunity Tesco is having is the existence of the new market for the expansion.

In a fast changing situation with a great players pressure, Tesco able to accept the new plans and policies in the growth strategies or diversifying its existing business in order to grab the large market and become the leader of the market in the retail industry. The quality of a expressed plan and the speed of the operation of new strategy are found to be fast in actions. Porter’s strategies are applicable in the grocery industry in relation to have the competitive standing. These strategies have allowed Tesco to have the competitive advantage in the UK market and overseas making them the third largest the grocery retailer in the world.  The competitive plans used in the business made the expansion implementation decision easy for the company.

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