External and Internal Environments - Segments of the General Environment - Case Study Example

External and Internal Environments Introduction Tesco Plc. has been selected for analysis in this report. Various theories have been implemented for the purpose of analysis. The current industry position of the retail market is explained through the implementation of Porter five force models. SWOT analysis has been considered for analyzing the internal and the external factors of the organization. Value chain analysis has been performed for analyzing the value of the organization through product differentiation and cost leadership. The analyses determine the growth strategy of the company for capturing the local and the international market. Resources, competencies and capabilities play an important role in determining the sustainability of the company in the industry and thus gaining competitive advantages over its competitors. Question 1 Segments of the general environment The various segments of general environment influence the demand and supply level of the corporation and the industry. Figure 1: PESTEL Analysis (Picton and Broderick, 2009) Political factors Political factor plays an important role in influencing the performance of Tesco. The government has focused on the improvement of retail industry which provides employment to huge number of people. Tesco understands the fact that retail industry contributes to the economy by providing employment to huge number of people. The rate of employees’ turnover is more in the retail sector. But the favorable political factor influences have increased the extent of loyalty of its employees. Economical Factors Tesco is severely affected by the economic factors which influence the demand, price, cost and profit of the company. The economic factors are not in control of Tesco, but this factor influences the marketing mix and performance of Tesco. Since Tesco is highly dependent on the economy of UK, therefore any slowdown in the food market of UK will severely affect the performance of Tesco. Social Factors The customers of UK prefer bulk and one stop shopping. Due to increase in awareness of health issues among the consumers their approach towards food is changing. Tesco have decided to adapt themselves according to the changes by increasing the demand for the organic products. Technological Factors The advancement in technology has benefitted Tesco. Technological development has facilitated the system of online shopping and home delivery and also the introduction of self service check out points. Environmental Factors The government has imposed pressure on the companies to consider the environmental issues. Therefore Tesco have committed towards reducing 50% of its carbon footprints by 2020. Tesco by minimizing the waste have increased the social conscience of its customers. Legal Factors The policies and legislations also influence the performance of Tesco. The Food Retailing Commission has introduced various practices and the retailers are required to abide by the principles. Therefore Tesco offers price reduction on fuels to its customers and the amount they spent on the grocery stores. Question 2 Forces of competition The five forces of competition includes the threat of new entrants, bargaining power of suppliers, bargaining power of buyers, bargaining power of competitors and the threat of substitutes. The threat of new entrants and the bargaining power of competitors play a major role in influencing the level of competition of Tesco. Threat from New Entrants Tesco faces a stiff competition from its competitors that dominates the market in United Kingdom. The main competitors of Tesco are Sainsbury, Asda and Safeway that occupies a market share of more than 70% and the small chains which include the Budgens and Waitrose that acquires a market share of 10%. It creates a barrier for the new firms or companies in entering into the retail industry. Therefore it becomes difficult for the new firms in raising sufficient amount of capital due to increase in the fixed cost. Tesco have invested intensively in the UK market. Intensity of Rivalry The retail industry is experiencing a significant growth in its size and the dominance of the large players that exist in the market. Tesco operates in a flat and mature market where the extent of growth is very difficult and the consumers are demanding and sophisticated products. The highly competitive retail market has fostered the growth and development has compelled the retailers of UK to become more innovative. Tesco has been facing immense competition due to increase in consumer demand for innovative services and diversification. Tesco has also adopted the strategy of differentiating its products. Question3 Two forces to improve its ability in the near future. Threat of New entrants Tesco have adopted the strategy of expanding in the UK market. Therefore it has invested an amount of 1 billion pounds in order to enhance its investment in UK. Tesco provides an adequate shopping experience for its customers. It has opened more than 2975 stores in UK. Tesco has improved its performance for competing with other brands such as Carrefour and Wal-Mart in international market where the company has invested. Therefore the threat of new entrants in the industry is very less. Tesco has invested in more than 12 countries of the world. Intensity of Rivalry Tesco has invested significantly in order to capture the market share. Tesco faces immense competition from its major competitors and therefore Tesco has to compare its products and prices with the price and products of its competitors. Tesco is engaged in offering more valuable products as compared to its competitors. Tesco has been facing immense competition from Wal-Mart in the international industry and therefore it provides intense competition to Tesco in its foreign investments. For example in China, Tesco encounters competition from Carrefour and Wal-Mart in order to attract its customers in the retail industry. Question 4 External Threats and Opportunities External Threat The external threat that is encountered by Tesco is the threat of takeover from its major competitor Wal-Mart which is considered as the market leader in the retail industry. Tesco encounters a strong competition from Wal-Mart since it possess both means as well as motive for taking such action. The other threat that is encountered by Tesco is the economic recession that has adversely affected the economy of UK. The situation of credit crunch in the economy directly influences the purchasing power of the consumers. Tesco also encounters competition from its local competitors which includes Sainsbury, Morrisons and Asda. Due to stiff competition the company may not be able to succeed in the international market. Opportunities Tesco is considered as the third largest retailer in the world. Tesco has diversified and expanded its business geographically by opening more than 435 stores which reflects the growth of the company. The development in the technology will provide new shopping experience to its customers. Tesco decided to expand its business in India for improving the performance of the company globally. In order to expand its business in India it has entered into partnership with TATA. Tesco will receive an increase in revenue from 125 billion pounds to 145 billion pounds from the food industry (Jones and Nakamoto, 2011). Question 5 Strengths and weaknesses Strength The greatest strength of Tesco is their large market share, its strategy of comprehensive supply chain, its successful growth and online stores. Tesco experiences a stake of more than 30% share in the UK retail market. Tesco has the strength of occupying the largest market share by opening various metro and convenience stores for providing convenience to its customers. The company has managed its IT system for achieving the low cost strategy. Tesco has introduced ERP system. Tesco has focused on Just In Time and lean distribution strategy for gaining competitive advantages over others. The company has experienced a growth in the economy in spite of credit crunch prevailing in the economy. It achieved a growth rate of more than 10.4% in its total sales. The considered organization has invested for the application of ICT for ensuring convenience and efficiency of its customers. Tesco is considered as one of the largest online retail store in UK. Weakness Tesco has encountered a decrease in its financial profit which can be observed from the increase in bad debt. The main weakness of failure is its inability to capture the market place for carrying out its business operation. The company has experienced a negative brand image. Tesco has encountered criticism and rumors for using horse meat in their burgers instead of using beef meat in their burgers. The company has focused more on expanding its business in the international market as compared to its regional market which provided an opportunity to its competitors for improving its performance (Tesco plc, 2014). Question 6 Resources, capabilities, and core competencies Resources The resources of Tesco can be broadly divided into tangible resources and intangible resources. The tangible resources of Tesco mainly includes 4, 40,000 employees, 3700 stores and a turnover of 60 billion pounds. The intangible resources of Tesco are its brand name, reputation, consumer information and corporate culture. The resources of Tesco provide a competitive advantage over its competitors. The unique resources of Tesco play an important role in implementation of its strategy and outcome. Capabilities The capabilities of a company can be defined as the quality required by the company for surviving in the industry. Tesco always focused on improving its capabilities that is considered valuable for the customers in order to gain competitive advantage over its competitors. The core competencies of Tesco are based on its customer services, product range and its product value. Tesco also focuses on its customer friendly environment. Therefore Tesco requires its employees should be helpful towards its customers. Competencies The core competencies are considered as the important element for the success of the organization. Tesco introduced the system of club card for appreciating its customers. The customers are offered certain coupons and vouchers that will provide gift or discount to its customers. It developed an integrated IT system for monitoring of its stock and deliveries which will help them in analyzing the transaction. Question 7 Value chain The value chain analysis is considered as the important tool for increasing the value of the organization. The value chain analysis establishes relationship between the primary and the secondary activities of the organization. Primary Activities Inbound logistics Tesco is required to experience strong bargaining power from its suppliers. Tesco utilizes its economic of scope and leading market position for receiving its supplies at a lower cost. Operation Management Tesco experiences strong supplies in its chain management for producing its products effectively. Tesco has decreased its cost through the application of its efficient IT system. Outbound Logistics Tesco has been experiencing an efficient and well managed outbound logistics system. Tesco has been able to develop a strong relationship both in its offline and online retail segments. Marketing and sales The club card system that has been introduced by Tesco as a marketing strategy for increasing its sales and the advancement in the technology helps to attract more customers as compared to its competitors. Services Tesco is focusing on the dual strategy of product differentiation and cost leadership. Tesco mainly attempts to attract more of its customers. Tesco has focused on providing more diversified products to its customers for increasing its value as compared to its competitors. Figure 2: Value Chain Secondary Activities Procurement Tesco establishes relation with its suppliers for minimizing the procurement cost Human Resource Management Tesco engages the people with skill and commitment for serving the company with loyalty. Technology Development Tesco has experienced an improvement in the technology through the introduction of Tesco.com and creation of e-commerce activities. Firm Infrastructure Tesco has provided facilities for its stores and offers adequate parking place for its customers in the store. Conclusion Tesco is operating in business environment that is highly competitive and there is existence of large number of competitors within the same industry. But it has implemented its strategy successfully by creating more value for its customers. Tesco enjoys various strength and opportunities that has helped the organization in competing successfully with its competitors. The value chain analysis of the company has facilitated Tesco in utilizing its input for creating value for the organization both in terms of its product differentiation and cost leadership. Therefore Tesco enjoys competitive advantages over its competitors like Wal-Mart, Sainsbury etc. References Jones, A. and Nakamoto, M. (2011). Tesco announces retreat from Japan. Retrieved from . Picton, D. and Broderick, A. (2009). Integrated marketing communications, 3rd edition. Harlow: FT- Prentice Hall. Tesco plc. (2014). Annual Report and Financial Statements 2014. Retrieved from < http://www.tescoplc.com/files/pdf/reports/ar14/download_annual_report.pdf >. Read More