Business Environment of Tesco PLC
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10846 Downloads I Published: 21 Jun ,2017
Each and every organization operates in a business environment, so it become necessary for a company to understand various concepts related to the business environment in which it operates. Business environment of an organization is made of various internal and external factors affecting the ability of the firm. In this era of globalization, an organization can be affected not only by the local business environment but also by the global business environment.
This research report will explain various aspects of the business environment of Tesco PLC. The purpose of various types of organizations as well as responsibilities of the organization toward its different stakeholders will also be explained in this research report. The impact of various economic policies and competition policies will be highlighted in the subsequent report. Future, how the various factors of business environment affect the activities of the company will be described here. Finally, the impact of international trade and the global factors on the business organization will be explained in this research report.
Tesco PLC is a global grocery and general merchandise retailer, which was founded in 1919 by Jack Cohen and headquartered in Cheshunt, Hertfordshire, England. It is the second biggest retailer in the world in term of profits. It serves tens of millions of customers every week with help of its website, www.tesco.com, and it’s over 6350 stores and more than 530,000 employees in all over the world (About us, 2009).
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There many types of organizations such as Private Limited Companies, Public Limited Companies, Partnership Firm, Sole Traders, Cooperatives Firms, Franchises, Government Organizations, Voluntary Organization, Charity Firms etc. These organizations may have various purposes such as customer satisfaction, profits earning, fulfillment of corporate and social responsibilities, optimum utilization of resources, help particular types of people, increase in the sales and service level, good return on capital employed, increase in the market share and growth rate, etc. on the basis of types of business.
The purpose of Tesco PLC, which is a Public limited company, is to create value for the customers, shareholders as well to the society to earn their lifetime trust and loyalty. The main purpose of Virgin Group Ltd, which is a Private limited company, is to satisfy customers by providing good quality products and services along with earning a good profit. The major goal of a franchise business like McDonalds may be to provide good margin and create a good brand value for the company by providing better services to the customers. The objective of National Health Service, which is a publicly funded healthcare system, is to effectively use the valuable public resources to provide benefit to the individuals and society for the long term (Pollock, 2004). On the other hand, the main aim of any corer shop may be to conveniently provide goods and services to the customers as well as to earn a good profit as well. Thus, there are many types of business organizations and their purposes are also different.
Stakeholders for an organization are the individuals, groups or associations that influence or influenced by the activities of the company. There may be lots of stakeholders for a company like Tesco PLC such as customers, investors or shareholders, financiers, employees and their family, society, competitors, government, etc (Describe The Different Stakeholders Who Influence The Purpose Of Two Contrasting Organizations, 2011).
Each of these stakeholders of the Tesco PLC has some expectations from the business organization. The investors or shareholders are vital stakeholders in the organization, as they are the owners and obviously want the company to make more and more profit. The company can meet the requirements of the investors and shareholder by performing well and providing good return in their investments (Nimwegen and et. al., 2008). The customers are also one of the very important stakeholders of the organization. The customers want to get right value of their money by getting highest quality products at competitive prices. The employees also have some expectations from the company like they want job security, higher wages, best reward for their work, good working environment as well as promotional opportunities. The supplier wants to be valued and respected as well as want regular orders and timely payments from the firm. The government is also a stakeholder that wants from the business to become successful, to generate employments, to honestly pay taxes as well as welfare of the society (Carroll and Buchholtz, 2006). Thus, different stakeholders have different expectations from the company, which should be fulfilled by the business organization.
Tesco PLC also have several responsibilities including social, legal, ethical responsibilities, responsibility of fulfilling the requirements of various stakeholders, etc., which can be met by using some strategies (Doucet, 2009). For fulfilling its social responsibilities, Tesco adopts various strategies. These include considering varied aspects relating to the natural environment, fair trade, global warming, charter compliance, etc. in the planning stage (Waddell, 2000). It works for the welfare of communities in which it operates. The company runs a program known as ‘Living Life to the Full’ for supporting adults with depression. Tesco aims to collect 5 million meals in one week for helping the families in need (News and views, 2014). Firm meets its legal responsibilities by following approaches such as obeying various legislations like health and safety legislation, employee legislation, equal opportunities and anti-discriminatory legislation, consumer legislation, environmental legislation, etc. Various ethical responsibilities including responsibilities towards stakeholders should also be met by the business enterprise. The Tesco PLC takes strategic decisions to fulfill the expectations of the stakeholders like to provide good profit to the investors by operating in the best way, to provide good remuneration and working environment along with job security to the employees, to provide best quality products at reasonable price by using better techniques and reducing the cost of production, to make timely payment to the suppliers, etc. Company adopts the strategy of sourcing the raw materials in an ethical manner. In this way it fulfills its ethical responsibility.
The economic system of any country is the system for manufacturing, allocating and using goods and services, as well as the blend of the several consumers, agencies, institutions, entities or sectors that contain the economic structure of a given community or society. There are 3 kinds of economic systems adopted by different countries, which are commercialized economic system, command economic system and mixed economic system.
The economy of UK, one of the most globalized economies, is the 6th largest economy in terms of nominal GDP and 8th largest economy in term of PPP. The economic system in UK is a mixed economic system, which is a combination of commercialized and command economic system. In UK, all the economic resources are divided between public sector and private sector. Here, most of the economic decisions are made by or depend upon the private sector, the government or the public sector also interfere in these decisions in various ways like fiscal policies, monetary policies, competition policies, taxation policies, subsidies, etc (Cohen, 2010). For example, the Tesco PLC makes many decisions relating to allocation of resources in UK, but it has to consider various policies and the rules & regulations formed by the UK government in those decisions. Thus, here the allocations of various recourses are affected by both public as well as private sector.
The monetary policies and fiscal policies are the tools of government to control various activities related to allocation of resources in the country. Monetary policies of UK affect the supply of money in the nation with the help of various tools like open market operation, SLR, CRR, etc., whereas the fiscal policies are related to generating revenue through taxation and government spending for various economic activities (Richard and et. al., 2011).
The Fiscal policies of UK often affect the level of taxation faced by organization in UK like Tesco PLC. If taxes are raised by the government, the organization will have less money for hiring employee, investing in new projects as well as may have to the increase prices of product and services (Bartle, 2002). On the other hand, lower taxes can lead to stimulating investment spending as well can create more employment. The monetary policies also have a great impact on the Tesco PLC as it affects the ability of the company to obtain credit. A contractionary monetary policy reduces the supply of money and can lead to increase the interest rates, which make it more difficult for the company to borrow money. On the other hand, an expansionary monetary policy can lead to lower interest rates, which makes easy access to credit. Thus, both monetary policies as well as fiscal policies have significant impacts on the business activities of the company (Hall, 2013).
The competition policies and other regulatory systems of UK have significant impacts on the activities of all the business organizations of UK including Tesco PLC (Bateman and Snell, 2007). Various regulatory systems of UK like competition policies, import-export policies, various types of regulations, licensing policies, various types of restrictions, etc. significantly affect the activities of the Tesco PLC. The firm has to consider all these policies and regulations at the time of making any decisions.
The Competition policy of UK was introduced for the purpose of developing appropriate competition among the firms to enable the consumers to get the best products and services at lowest price from the competing market (Abdullah, 2003). The Competition policy of UK provides a competitive environment for Tesco PLC by enabling lower prices for customers, promoting faster economic growth, more innovation and more efficiency and welfare of the economy. It encourages effective competition, makes better markets, ensures wider consumer choice, as well as contributes in the improved efficiency and enhanced competitiveness of the company (Thomas, 2012). Thus, the Tesco PLC is affected by various policies and regulatory systems of UK including fiscal policy, monetary policy and competition policy.
Basically, market structures may be of following four types: Perfect Competition, Monopolistic Competition, Oligopoly and Monopoly. The decisions related to pricing and output in the firms depends upon the type of market structure.
In case of perfect competition, no single firm can affect the prices as the prices of the products are equal to the marginal cost of production, but there is no restriction in output decisions. In monopoly market structure, the monopolist is the sole provider of the products or services, so the output decisions are very restricted but he can change the prices to make MC = MR for achieving profit maximization. In case of monopolistic competition, pricing and output decisions are same as in case of monopoly competition (Canina and Enz, 2010.). In oligopoly market structure, the pricing and output decisions are complex and depend upon the strategic interface among the dominating firms. The retail industry of UK is very competitive, but some big players such as Tesco PLC dominate there, so it can be called as oligopoly market structure. Because of liberalization competition policies and other regulatory systems in the retail market in UK, no particular firm can control the prices to suit them. Thus, there is strategic or uniform pricing that is set by the market, instead of price-fixing by the firms. The market structure influences the output decisions also by influencing the pricing decisions.
Market forces refer to the forces of demand and supply within the market, and external business environment that influence the pricing and output decisions of companies, like Tesco PLC, functioning in the market (Morgan, 2008). There may be many market forces such as demand and supply forces, competitions, technological forces, political and legal forces, economical forces, research and development, skills of the employees and management, etc. that affect pricing and output decisions of the company. Conversely, organizational response refers to the reaction of company i.e. Tesco PLC to any business situation and market forces. The response of the company to the market forces is important in any circumstance, as it directly affects the profits and goodwill of the firm.
For example, most of big companies including Tesco PLC perform market research to obtain information about the forces of demand and supply in the market to properly respond the requirements of the customer, for increasing the profit and goodwill of the firm, by producing and supplying required products and services to the customers (James, 2005). If there is high demand of any product, then the firm can increase the production and supply of product also to meet the demand of the product. If this is not possible, then it can raise the prices of product to control the demand of the product. Thus, the various market forces greatly affect the responses of the company. The PESTLE factors affect Tesco in the following manner:
Political factors- Tesco is affected by the political factors as it has to follow the rules and regulations made by the government in the retail sector. Also, political conditions prevailing in a country will be directly impacting Tesco (Mahmood and Swidi, 2011). Political instability will have a negative impact on the activities of Tesco.
Economic factors- The economic conditions impact Tesco. A recession in the economy leads to a decrease in the purchasing power of the consumers. Thus, the sales of luxury products of Tesco decrease. On the other hand, if the economy is experiencing a boom, then the sales of Tesco products increase.
Social factors- The social factors such, as tastes, behavior and preferences of customers impact Tesco. It has to modify its products as per the changes in the tastes and preferences of the consumers.
Technological factors- A number of advancements are continuously being made in the field of technology. These have to be incorporated by Tesco to deliver positive customer experiences (Bartle, 2002). Technology such as online shopping, bar coding have to be adopted by it. In this regard, Tesco provides its customers a service known as ‘click and collect’ in which they can place an order online and collect the product as and when suitable.
Legal factors- Laws made for the retail sector impact Tesco. As per the competition Law, Tesco has to ensure that it indulges in fair trade practices that promote just competition. Also, it has to abide by the acts such as Sales o Goods Act, 1994.
Environmental factors- Tesco ahs to ensure that its activities do not harm the environment. The customers are especially concerned that an organization conducts its business in an environmentally responsible way (Bateman and Snell, 2007). Thus, it takes care that it adopts environmental friendly practices of manufacturing and procuring raw materials.
The behavior of the Tesco PLC is greatly affected by the business and cultural environment, because it has to operate its business activities in this environment (Mahmood and Swidi, 2011). The organizational culture of the company reveals the way in which employees are treated, the practices adopted to compete with other firms and to attract customers, etc. (Ashkanasy, Broadoot, and Falkus, 2000). The organizational culture of Tesco PLC is very flexible and the employees are treated with trust and respect, so they provide their best services to satisfy the other stakeholders.
Before taking any decisions Tesco PLC has to consider various business environmental factors for getting success in the market. The behavior of the firm is not only affected by the internal business environmental factors like value system, objectives, internal relationship, etc., but also by the external business environmental factors including various micro factors like customers, suppliers, competitors, investors, public, etc. and macro factors like political, socio-cultural, economical, legal, technological and environmental factors (Campbell and Craig, 2008). For example, various legislations can affect the expansion of business, any change in climate can affect the transportation and supply of products, change in the fashion and taste can affect the demand of products, economic policies can affect the availability of credit, etc. Thus, the factors of business and cultural environment have a significant impact on shaping the behavior of Tesco PLC.
Micro forces such as customers, suppliers, government and employees. Customers impact Tesco as they are the ones who lead to revenue generation. As such, to keep the customers satisfied, Tesco has to provide products that suit their demands. If the customers are not happy with Tesco’s products then its sales will decrease. Suppliers provide raw materials to the company. Healthy relations with them will promote the business activities of Tesco. On the other hand, if the suppliers are not satisfied with Tesco, then they will not be ready to provide raw materials at time (Yu and Ramanathan, 2012). This could negatively impact Tesco’s activities. Government impacts Tesco by making rules and regulations which retail companies are required to follow. Along with that, Tesco has to make sure that it discloses the necessary information to the government about the organization. Employees are the face of every company. They form the image of the company in the minds of customers by attending them in a polite way. Not only this, they are responsible for making strategies for the growth and improvement of Tesco. Hence, they significantly impact the company by their work. In this regard, Tesco had to make continues efforts towards keeping the employees satisfied.
The United Kingdom’s domestic market is not much larger, as it is a small country. The economy of UK largely depends upon the international trade. The companies in the UK like Tesco PLC can earn huge profits only by doing business in the global market, so there is great importance of international trade for the UK business organizations (Samuelson, 2005).
The international trade helps the companies like Tesco PLC to get broader market and extensive scope to increase its sales as well as profit. By doing business in the international market, the business organizations have reduced the costs of production by receiving low priced materials and labors. At the same time, they can also get the products, which are not available in the home country. For example, as the climate of UK is quite frosty, so it gets many fruits such as mango, banana, etc., from other nations, who are comparatively warmer like India. All this is possible only because of international trade. Many new ideas and technologies for business activities can also be availed by the firm due to global trade. The international trade is also helpful in reducing the dependence on the existing market by increasing the possibilities for business expansions in the global market.
In the present globalized era, various global factors like The European Union (EU) policies, WTO, BRIC economies, protectionism, etc., significantly affect the UK business organizations like Tesco PLC, in a positive as well as negative ways also. The WTO handles various disputes constructively, provides privileges against unfair and inequitable trade practices, and provides better security and stability as well as freer trade for the local as well as global market. Various competition policies encourage competition in the market that can be a great stimulus for the companies like Tesco PLC, which are seeking new techniques of making cheaper and better things. This helps in making more progressively and rapidly growing business economy to the economy of UK (Reid, 1998). These global factors have also imposed many threats and challenges for the companies of UK. For example, during recessionary period the companies have to face lots of financial problems. The Tesco PLC is also affected by other global factors such as subsidies exchange control, tariffs, quotas, legislations, rules and regulations, etc. of various nations in the international market.
Tesco’s operations are impacted by the global PESTLE factors in the following way:
Political factors- Political conditions prevailing in the world impact Tesco’s operations. In the situations of global political instability and wars, international trade of Tesco is impacted in a negative way. On the other hand, harmony between the political parties of the world promotes business expansion.
Economic factors- Recession experienced in the world economy impacts Tesco’s sales by affecting the purchasing power of the consumers (Cohen, 2010). Also, developing countries would not favor Tesco’s luxury products in such conditions.
Social factors- changes in the attitudes and behavior of people around the world give rise to trends. As an impact of this, Tesco manufactures and designs its products accordingly.
Technological factors- technological developments taking place in one part of the world will impact Tesco’s processes. These developments can be incorporated into its services and presented to the developing countries where these have yet not occurred. This will positively impact the sales of Tesco.
Environmental factors- Global warming and other phenomena such as ozone depletion that have impacted the whole world have raised concerns of the consumers as well. Several laws have been made to protect the environment of the world (Carroll and Buchholtz, 2006). To care for the concerns of the consumers as well as to follow the laws, Tesco will have to adopt practices that do not harm the environment. Thus, its operations including sourcing of raw materials, manufacturing and distribution will be done as per the rules and laws.
Legal factors- Various laws made on a global level to promote fair trade and competition will be impacting the way Tesco operates globally. Thus global trade will be carried out by the company as per the laws governing it.
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The EU has created a single market with the help of a reliable system of rules and regulation applicable to all member countries (Christine, 1998). Various European Union (EU) policies related to agriculture, business, employment, education, growth, competition, economics and finance, environment, technology, exchange rates, etc have a great impact on the companies of UK like Tesco PLC. These policies ensure free movement of employee, goods and services, and other resources for business activities, as well as affect the import-export of UK business organizations. Thus, EU policies have a great impact on the Tesco PLC. Common Fisheries Policy of EU sets quotas for member states. As per this policy, one is allowed to catch a specific amount of each type of fish. However, if there takes place overfishing as per this policy, then the prices of its fishes will increase (Abdullah, 2003). This will impact Tesco as it will have to pay more money for buying a certain amount of fish. Hence, its profit margin will decrease. Agriculture policy proposed by EU lays emphasis on increasing the production in European countries. The aim of this is to limit the imports and enhance the opportunities of employment for domestic farmers. These will impact the activities of Tesco.
From the above report, it can be stated that there are several types of organizations with different purposes. The stakeholders have some expectations that should be met by the companies. The business environmental factors affect the behavior and activities of business organizations. The monetary, fiscal and competition policies of UK as well as various global factors significantly affect the Tesco PLC. The international trade is very beneficial the firms in UK and the pricing and output decisions of any company depend upon the structure of market (Yu and Ramanathan, 2012).
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