Internal Factors Affecting Tesco PLC
Question:
Analyse the various internal and external factors that are influencing and impacting the Tesco Company.
Tesco PLC is a British originated multinational retailer dealing in grocery and general merchandise. Tesco is known to be the second largest retailer revenue-wise in the world and third largest if measured by profit. They have stores in twelve countries all across Asia and Europe; also the market leader of UK in the grocery with the market share of 28.3 %.
The key to success for Tesco is innovation. Tesco gives equal focus to innovation as well as on their customers. Tesco aims at making the shopping experience an easy task for its customers and improving its services by providing better value for products than just concentrating on prices (Altinay, 2005).
To achieve its objectives Tesco regularly analyses the factors affecting the company. There are many external and internal factors that influence the company and its working. In this report, eleven factors will be analysed, and their impact and consequences on the company will be discussed (Anyesha, Hassan, & Aboki, 2014).
There are many factors that affect an organisation and its working. These factors are external as well as internal which influences an organisation. These influences are needed to be known by the organisation as they help in many ways in the success of the organisation for example: –
- For improving the performance of the company
- For examining the likely effects within a company of future changes
- Alignment of processes and departments during an acquisition or merger
- For determining the best way of implementing a proposed strategy (Bachkirova, 2012)
The main internal factors that impact an organisation are: –
Structure- The Tesco’s organisational structure is highly hierarchical, and it includes many layers from store sales to management to the CEO. This highly organisational structure hinders the smooth running of the operating process of the organisation. Hence, it was analysed that a more simple structure would help the organisation in achieving its goal in a better way (Barnes, 2011).
Systems- The chain of supermarket of the company basically depended on the wide and spread range of systems for approaching a sustainable operation, on the daily basis. This kind of system proved to be a hindrance in operating the sustainable operation therefore, to get the business back on track; steps were taken to simplify the organisational systems (Belavina, Girotra, & Kabra, 2016).
Shared Value- The objectives and belief of the company are stated with the help of shared values. The organisation has its belief that by increasing the sophistication of management techniques from being just a simple manufacturing company to a standard value chain will help the company to achieve its objectives. (Brannen, Moore, & Mughan, 2013).
Staff- Staff means the number of employees a company has throughout its organisation. More than 400,000 employees are recruited all over the world by Tesco. For any organisation their employees are their main assets, if they do not work efficiently then the organisation will never succeed (Harrison & Gordon, 2014).
Skill- The capabilities of an organisation or its employees to complete a particular task is described as the skills of the company. To have a positive impact of this internal factor, Tesco administers complete knowledge to its employees so that they could work efficiently and effectively within the organisation (Kim & Hallsworth, 2015).
External Factors Affecting Tesco PLC
The external factors that impact the organisation and influence its working and achievement of goals are:-
Political, Economic, Social, Technological, Legal, and Environmental
Political
Companies like Tesco are encouraged by many countries to invest in the developing market. For example, China has removed all barriers of foreign trades, and it is promoting the free flow of foreign investments. Tesco has entered into a joint venture with China, and they have agreed on developing of shopping malls in China. This has provided the company with a great boost in the international market and expected to increase the company’s profit by one-quarter (Li, 2011).
Economic
The buying behaviour of the customers is directly impacted by the economic factors and it is the main concerning factor for Tesco. The UK is under recession; this has been already declared by the country. But, this is also a fact that the government is taking all kinds of initiatives to reduce the unemployment effects by decreasing interest rates that also help in minimising the effects of the recession. Due to these initiatives the buying power of customers has stabilised, and it gives confident to the customer about their financial position
(Maass, Ahsan, & Mowatt, 2014).
Fig 8: UK Spending on Food as % of Overall Consumer Spending 2004 to 2008
Fig 8: UK GDP Growth 1989-2009
Social
The population, religious beliefs, lifestyle, and social beliefs of people come under the heading of social factors that influences a company. The main population of UK consists of elderly people who in comparison to young and adult generation eat less food. Therefore, they don’t go to supermarkets also for making their purchases. For them, the internet is becoming a great helping hand.
Nowadays food habits of consumers are also changing. Organic and health conscious food are coming more in demand by health-conscious people. It is necessary for Tesco to change its product range to suit the present demand of the customer (Bachkirova, 2012).
Technological
Nowadays technology is becoming a major part of the day to day life. People prefer making purchases of online grocery rather than going to a supermarket and making purchases which are affecting the business of retail supermarket. Already internet shopping has shown a steady growth in last few years. More than 50 % of the population is already using the internet on a regular basis which is expected to increase by 70% in the coming future (McClatchey, Cattell, & Michell, 2007).
Environmental
Due to increasing sustainability demand government is now promoting environmentally friendly products and packaging. People are also becoming aware of the sustainability as there is a substantial growth in the usage of reusable bags from 71% to 74%. People have stopped using plastic bags which has reduced company’s expenses and helped in giving it a good image
Tesco is aware that customers are getting conscious about carbon foot prints. So it has added carbon data on potatoes, orange juice, and dairy products and planning to introduce it in bread and other non-food items also (Merxâ€ÂChermin & Nijhof, 2005).
Political Factors
Legal
VAT is predicted to be going up to 20% due to the financial recession. And it will result in decreased demand for non-food segments such as clothing, shoes, etc.
National Minimum Wage is planning to increase wage rate up to 15.5 % which adds into the operating cost of the company. This is going to affect the profit ratio of the company (Nagyova, Bercik, & Horska, 2014).
The opportunities that the Tesco Company has from the above influences are as follows: –
- With over 1 million customers Tesco. Com is gaining popularity day by day this is an opportunity for the company to reduce its overall cost and attract new customers who are switching towards new technology (Ringholz, 2005).
- There is a substantial rise in Tesco’s commercial network portfolio. This diversification of the company in the global market provides an opportunity to the company in increasing its scale of economy and minimising risks of systematic exposure.
- Developing markets like India can provide a great opportunity for global expansion to the company.
- There is a prediction of a huge growth in food retail market which can prove to a great opportunity for Tesco as they are already established in the market (Anyesha, Hassan, & Aboki, 2014).
A company faces many risks and challenges and they are as follows: –
- Global recession has resulted in economic recession of UK, and its economy has reduced by 2.4% and predicted to reduce further by 4.2 %. Tesco’s main operating unit is set-up in the UK and any bad affect on the UK’s economy will prove to be a setback for Tesco also.
- The financial recession is giving an adverse effect on the purchasing power of the customer; further recession will come with more adverse effects thus leading to the threat for the company (Altinay, 2005).
- Tesco is at present the leader in the grocery retail market in the UK. But the competition in UK grocery market is getting fierce with every new day and this intense competition can make the company lose its market share to them.
- Developing countries are opening their doors for companies like Tesco to come and invest in their markets. But these countries already have their own established competitors that have their market share in the market. The company has to fight its way to being a success which doesn’t have any certainty of success (Schroder & Holzle, 2010).
Structure
- To simplify the organisational structure, the roles of deputy store managers were eliminated.
- The Board of Directors has ten members in total and eleven members of the executive committee of the company. Now the company believes that there is no need of one leader, they should work as a whole from top to down to achieve the successful strategies (Ringholz, 2005).
System
- The performance evaluation system which was having forty different measures before and they were reduced to only six key performance measures.
- To achieve its pre determined strategies Tesco used a steering wheel that smartly and simply used to help the employees in the coming future (Belavina, Girotra, & Kabra, 2016).
Shared Values
- The company now share their values with their employees to enhance their level of efficiency by making them a part of organisation’s goal.
- The organisation has increased the sophistication of management techniques from being just a simple manufacturing company to a standard value chain (Altinay, 2005).
Staff
- . Tesco understands the importance of this internal factor, therefore, take good care of its employees by taking care of their needs.
- Tesco rewards its employees for being efficient and effective in their work.
Skills
- Tesco administers complete knowledge to its employees so that they could work efficiently and effectively within the organisation.
- It led to skill enhancement of the employees to work as per the standards of Tesco Company (Kim & Hallsworth, 2015).
Political
- The government of various developing markets are promoting free trading blocks which proved to be a great perk for the company due to increasing globalisation.
- Ten more countries are immersing in the European Union for the purpose of promoting trade between eastern and western European countries. This has given an opportunity to Tesco, and it has also expanded platform to increase its retail network in EU (Li, 2011).
Economic
- There is a lot of uncertainty regarding the actual financial position of UK. This makes customer save more and spend less to have a backup for future.
- The good point of recession for Tesco is that people eat more at home now and therefore, purchases of grocery items have increased which is the main product of Tesco Retail Company. The percentage of overall consumer expenditures on food has increased considerably in last few years (Harrison & Gordon, 2014).
Social
- Making small deliveries are expensive and ineffective in terms of profit for a company. Therefore, Tesco discourage it.
- Tesco is the first organisation that introduced payment through cheque.
Technological
- Tesco has taken steps to attract customers back to the supermarket by starting loyalty programmes and introducing offers.
- It has also launched an App called New Wine App which enables its customers to make wine purchases through their mobile phone.
Environmental
- To create awareness regarding environment Tesco has taken steps like, it has started with Greener Living Scheme which advice customer, methods of reducing food wastage, and carbon while cooking meals.
- Rewards are given to those customers who use reusable bags, recycled phone, and prefers bag less deliveries (Mortimer, Fazal e Hasan, Andrews, & Martin, 2016).
Legal
- Tesco has taken steps to decrease the costing expenses of its product to balance the increased expenses.
- More organised structure is being followed to come up with efficient staff at a lower cost expenses.
Conclusion
Tesco is a big retail company dealing in grocery and running profitably in the current global market. The rescission has led the company to analyse the factors that are affecting the business of the company. The various external and internal factors are analysed here and there impact either positive or negative, and the consequences that the company is facing due to them are discussed. The opportunities that can be used for companies benefits and risks that are needed to be avoided are also mentioned in the report (Turner & Wilson, 2006).
It is necessary for every company to analyse regularly the factors influencing the company to come up with positives that can be increased to bring profitability for the company and finding negatives which can be worked and reduced (Virginia & Claudiu, 2015).
References
Altinay, L. (2005). Factors Influencing Entry Mode Choices: Empirical Findings from an International Hotel Organisation. Journal Of Hospitality & Leisure Marketing, 12(3), 5-28.
Anyesha, A., Hassan, D., & Aboki, H. (2014). The Conquering Strategies of Oligopoly Firms. A review on entry Strategies of Tesco Company Plc in the UK and beyond. IOSR Journal Of Business And Management, 16(8), 06-15.
Bachkirova, T. (2012). The role of the self and identification with an organisation as factors influencing work-related stress: Implications for helping. Counselling Psychology Quarterly, 25(1), 49-62.
Barnes, R. (2011). The great Tesco beauty gamble (the Tesco supermarket chain’s marketing strategy for breaking into the UK beauty services market). Strategic Direction, 27(7).
Belavina, E., Girotra, K., & Kabra, A. (2016). Online Grocery Retail: Revenue Models and Environmental Impact. Management Science.
Brannen, M., Moore, F., & Mughan, T. (2013). Strategic ethnography and reinvigorating Tesco Plc: Leveraging inside/ out bicultural bridging in multicultural teams. Ethnographic Praxis In Industry Conference Proceedings, 2013(1), 282-299.
Harrison, S. & Gordon, P. (2014). Misconceptions Of Employee Turnover: Evidence-Based Information For The Retail Grocery Industry. Journal Of Business & Economics Research (JBER), 12(2), 145.
Kim, W. & Hallsworth, A. (2015). Tesco in Korea: Regulation and Retail Change. Tijdschr Econ Soc Geogr, n/a-n/a.
Li, K. (2011). The Optimal Level and Impact of Internal Factors on Growth. ME, 02(03), 181-193.
Maass, N., Ahsan, K., & Mowatt, S. (2014). Factors influencing public sector employee’s intention to work on projects.
McClatchey, J., Cattell, K., & Michell, K. (2007). The impact of online retail grocery shopping on retail space: a Cape Town case study. Facilities, 25(3/4), 115-126.
Merxâ€ÂChermin, M. & Nijhof, W. (2005). Factors influencing knowledge creation and innovation in an organisation.
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