Tesco Company Pestle Analysis - Case Study Example

? Pestle Analysis PESTLE ANALYSIS Background Information on Tesco Tesco was founded in 1919 by Jack Cohen when he started selling groceries from a Well Street Market stall in the East London part of Hackney. As a brand, it first appeared in the year 1924. Cohen inaugurated his first store in 1929 in Edgware’s Burnt Oak in Middlesex. Floated in 1947 for the first time in the London stock Exchange under the name Tesco Stores Limited, a store dealing in self service was opened in the year 1956 in St Albans. This particular store was operational up to 2010. The brand’s first supermarket was opened in 1956 in Maldon. Tesco underwent organic growth in the 50s and 60s, while also undergoing acquisitions up to its peak ownership of over eight hundred stores. In 1957, the company bought seventy stores off Williamsons, two hundred outlets from Harrow Stores in 1959, two hundred and twelve stores from Irwin’s in 1960, ninety seven from Charles Phillip and in 1968 bought a chain from Victor value. At its inception, it specialized in drinks and food, but diversified into software, internet services, music and movie downloads, telecoms, electronics, and clothing. In 1987, Tesco completed a hostile acquisition of forty supermarkets from the Hillards chain for approximately ?220 million. 2. Pestle Analysis The pestle analysis is a tool that is vital in the comprehension of decline or growth of the market, thus creating better awareness of the direction, potential, and position of the business. The tool is utilized for the measuring business activity in a company. Pest is an acronym for political, Economic, Social, technological, Legislative, and environmental factors (Cadle et al, 2010 p6). These are used for the assessment of the market or unit of organization. The headings used in a Pestle analysis are situational review framework and can be utilized reviewing company ideas, market propositions, direction, position, or strategy. Pestle analysis is an important tool when used in workshop sessions, on top of being quite simple to use. It is also quite useful in sessions that involve brainstorming, as well as for strategic planning, research reports, product development, and market planning. Since this tool is virtually external, it is best completed before the SAWOT analysis, which is more based on internal and quasi external factors (Cadle et al, 2010 p6). The headings in a Pestle analysis give the company a manner in which to examine the external scene surrounding it (Cadle et al, 2010 p6). It is possible to become too involved with internal issues while working in a company that the external issues are relegated in importance. The fact that these issues could have a huge impact on the success of the company makes their status vital. Ignorance of these issues could put the company’s future endeavours in doubt. The headings are as follows: Political This particular section involves the identification of political facets that impact on the organization. These are issues on politics within the company itself, political issues in the organization’s region or base, and political issues on the international and international stage (Williams & Adrian, 2007 p34). In an economy that is increasingly global, political changes affecting a particular country have an effect on legislation and business in other countries as well. The motor industry is one such industry that is affected by political changes in overseas markets. In case motor car importation restrictions are loosened in a particular country, then countries that deal in motor vehicles will get an opportunity to export more cars into that particular country. It is however essential to realize that these companies will only benefit if they had produced adequate cars for the increase in export orders. Via keeping a close eye on any developments, such companies are able to better anticipate and prepare for these kinds of scenarios. The company can get enormous knock-on effects from these changes, with increased need for more sales team members, raw materials, knowledge on car specifications in the target country, and also capital. Political issues are inclusive of government changes, government policy changes, government spending increases or cuts, general election timing, changes to policy towards certain countries, local government changes, legislative or legislative interpretation changes, civil disturbance, and nationalization versus privatization (Williams & Adrian, 2007 p34). Political issues within the organization may include changes in chairpersons or chef executives, ownership changes, individual power struggles, and changes aimed at the organization’s beliefs, goals, vision, and mission. Economic These factors are concerned with external and internal financial matters in the company (Williams & Adrian, 2007 p35). An example of economic factors is changes instituted to national rates of interest. Increased interest rates may drive the prices of services and goods up by interfering with the cash flow of the company which may cause the organization to make less investment in capital or even stop investments by the company in new business ventures and products. Other factors that may be considered economic are taxation level changes locally or nationally, excessive wage increments, changes in welfare entitlements given to the company by the government, national currency valuations, employment rate changes, impact of multilateral economic unions, inflation, and recession. Sociological These relate to the beliefs, fashions, trends, habits and lifestyles of the people. One such example is changes to British birth rates. Reduction in children who are of school leaving age tied to children who stay on at school for further studies led to a decrease in school leavers who served traditionally as the major source of employees in most British companies. This dynamic led to more flexible contracts, encouragement of mothers to work again, increased practice of equal opportunity, increased tendency for the downsizing of companies and reduction in management levels, and a trend that moved away from generally hiring school leavers. Technological These factors involve technological changes and production processes advancements. Technological advances are happening at a frenetic pace and this could have implications for the company’s future, since a failure to keep up with the changes could leave it open to being overtaken by the competition (Wales & Neal, 2007 p178). These factors may also deal with the ability to respond to the wants and needs of the market technically. A good example was the creation of the cadmium battery which was not responded to by some manufacturers, who went on producing the old type of batteries. The companies felt the impact of the battery technology soon enough via a sharp drop in sales and market share. In Britain, one company that was literally unheard of before these batteries came into being is now a market leader. Other factors that may be considered technological include advances made in computer systems development, new operating systems and software, different processes of manufacturing, and new processes of distribution. Legal These are factors that are related to the firm’s operational legal environment. In the Unite d Kingdom, there have been numerous and significant changes to the legal system which has affected the behaviour of organizations (Ranchhod, 2005 p46). Introduction of legislation on disability discrimination and age discrimination, minimum wage increments, and increased requirements on organizations to reuse and recycle have affected many organizations and their actions. Environmental factors These include climate change and the weather. Such industries as insurance, tourism, and farming are greatly affected by temperature changes. Organizations are beginning to take climate change into consideration in their activities (Needham, 2005 p98). Increased taxes on air travel have impacted most organizations in the UK. 3. Industry Analysis Of Tesco: Pestle Framework a) Political Factors The performance of Tesco is greatly influenced by the legislative and political conditions of the numerous countries in which the company operates, including those countries in the European Union (Henry, 2008 p67). These countries include Taiwan, Japan, Malaysia, Thailand, South Korea, Poland, Turkey, Slovakia, Czech Republic, Hungary, and Republic of Ireland. The fact that Tesco operates in so many countries makes it absolutely vital for the company to keep abreast of all major political developments in these countries. For legislation on employment, there is encouragement from the government to retailers for them to provide mixed job opportunities from centrally located, higher paid, and highly skilled jobs to locally based, lower paid, and flexible jobs (Grundy & Laura, 2006 p94). In order to meet the population’s demands, such categories as senior citizens, working parents, and students are also factored in by the government in their policy guidelines. Tesco has a deep understanding on the role of retailing on jobs and population factors, especially as development of new stores is viewed as destruction of the retail job sector which sees conventional stores pack up or are backed down to reducing costs in order to compete. However, Tesco is a labour intensive and inherently local sector which employs many elderly, disabled, and student workers while paying them at lower rates. In an industry which has inherently high rate of staff turnover, these workers are proven to give an increased loyalty level therefore representing employees who are desirable. b) Economic Factors Tesco is highly concerned about economic factors since they are most likely to have an influence on profits, prices, costs, demand, and influence (Dransfield & David, 2005 p90). One of the economy’s most influential factors is the high rate of unemployment which in effect decreases the demand for most goods and thus affecting adversely the demand which is crucial for the production of these particular goods. The economic factors discussed are generally out of Tesco’s control but the effects that they have on the company, marketing mix and performance can be and are profound (Dransfield, 2005 p138). Even though business in the International arena is still growing and is more than ever expected to contribute to Tesco’s growth and profit margins in the coming years, the organization is still heavily dependent on the British market. Thus, the company would be hugely affected by any apparent slow down in the food market in the United Kingdom and are left exposed to risks that come with market concentration. c) Social/ Cultural Factors According to current trends, British customers are moving forward to bulk and one stop shopping which is as a result of various changes in the social arena. It was therefore imperative that Tesco increased the availability of non-edible items on sale. Such demographic changes as decline in preparation of home meals, increase in numbers of female workers, and a population that is rapidly aging means that British retailers are looking toward added value services and goods. In addition, today the focus is more geared toward operational improvements which are capable of increasing the cost of doing business, supply chain, and own-label business mix share. Retailers on the national level are now becoming more reticent when it comes to dealing with new suppliers (Cheverton, 2007 p109). The types of services and goods that the customers demand are a function of their conditioning socially and their subsequent beliefs and attitudes (Burch et al, 2010 p98). Consumers are receiving more and more information on issues to do with health and there are many changes as regards their attitudes toward drinks and foodstuffs which are changing at a constant and regular rate. One perfect example of Tesco’s adaptation of the product mix is its ability to accommodate heightened demand for products which are organic in nature. Tesco also was the first company that gave consumers the opportunity to pay for their services and goods in form of cash or cheques at the stores’ checkout. d) Technological Factors Many of Tesco’s products have been influenced in their development by technology which is a major variable of the macro-environment. Both the consumers and the company are greatly benefited by these fresh and brave technologies, which leads to increased satisfaction of the consumer since the commodities that they need become more easily available. Services also attain a personal touch and shopping is made easier and more convenient. The recent launch of the initiative on Effective Consumer Response has given the company a shift which is now all the more apparent in food supply chain management (Burch & Geoffrey, 2007 p54). Most of the stores owned by Tesco use the several of the below technologies: Radio Frequency Identification or RFID. A machine for self check-out. Shelf labelling via electronic means. Intelligent scale. Wireless devices. Adoption of the technology on Electronic point of sale, electronic scanners, and electronic fund transfer system have led to the great improvement of stocking activities and distribution efficiencies, with the supplier receiving the consumer’s needs in real time (Bensoussan et al, 2008 p123). 4. Conclusion Tesco’s success is an indicator of how much branding and effective delivery of service can be a more effective move as compared to splashing the company’s logo on billboards. This is achieved via a number of ways, most vital among them being the Pestle test which allows the company to view the external environment as a major determinant of its success. This external environment is measured by the Pestle analysis which involves keeping the company’s finger on the pulse of various major external factors which include: Political factors. Environmental factors Social-cultural factors Technological factors. Legal factors. Economic factors. In a business environment that is constantly in flux, with increased pressure form competitors, Tesco has had to adopt fresh strategies on expansion through diversification of existing opportunities such that they may sustain their position as a market leader. In companies such as Tesco, the strategy should be implemented at various hierarchical levels, with different strategy levels being related and supporting each other mutually. The company’s strategy at corporate level is definitive of Tesco’s competitive business environment, with focus being laid on resources which will convert competence to advantage. Reference Bensoussan, B. E., & Fleisher, C. S. 2008. Analysis without paralysis : 10 tools to make better strategic decisions. Upper Saddle River, N.J: FT Press. Burch, D., & Lawrence, G. 2007. Supermarkets and agri-food supply chains : transformations in the production and consumption of foods. Cheltenham [etc.]: Elgar, cop. Cadle, J., Paul, D., & Yeates, D. 2010. 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