Analysis of the Companys External Business Environment - Coursework Example

? work Assignment: Management Report Environmental Audit Table of Contents Table of Contents 2 Executive Summary 3 Introduction 4 (pleaseshorten it 4 – and provided me citation behind sentence) 4 Analysis of the Company’s External Business Environment 5 Analysis of the Company’s Internal Business Environment 8 Critical Evaluation 10 Conclusion 11 References 12 Executive Summary The existence, growth, prospects and development of a company is affected by the various internal and external factors prevailing in the internal and external environment of the company. Maintenance of success depends on the strategies implemented so as to operate in the prevailing environment. Strategies undertaken decide the success or failure of an organization. A strategy provides direction to the business and assigns a plan that is to be followed so as to fulfill the objective. The aim of this study is to focus on the strategies and plans undertaken by a renowned retail brand Tesco Plc so as to operate in the industry. The study shows the impact of the internal and external environment on the operations of the company. The internal and external factors have both a favorable and an unfavorable affect on the performance of the company. Where on one hand the company has earned growth, on the other hand the company has also been affected by threats which have affected its performance. Thus, the study will show that the environment has played a key role in evaluating the performance of the company. Introduction (please shorten it – and provided me citation behind sentence) Tesco Plc is a multinational company founded in 1919 by Jack Cohen, carries its business in the form of grocery and general merchandise retailer. The company’s headquarters is in England, United Kingdom, and carries on its activities in the United Kingdom, Hungary, the republic of China, the Czech Republic, Poland, Turkey, Slovakia, South Korea, Thailand, Japan, Malaysia, the United States and China. The company provides retail banking and insurance services through its subsidiary Tesco Personal Finance Plc. Tesco Plc is listed on the London Stock Exchange and is a constituent of the FTSE 100 Index. As of 15th January 2012, The Company had a market capitalization of approximately ?24.4billion and was the 15th largest company with a primary listing on the London Stock Exchange. Based on revenue it is the third largest global retailer behind Wal-Mart and French Carrefour, but based on profits it is the second largest. In 2010, Tesco Plc became the market leader within the UK food retail segment. The company was among the largest food retailers in the world having excess revenue of ?54billion in 2009 and employee strength of more than 470,000 people. Share of Leading Companies in the Food Retail market of UK Source: ivoryresearch, 2010 The company carries on its operations all over the world in approximately 4,331stores in 14 countries. The business of the company is divided into two segments, namely, retail and financial services. It provides online retailing services through their websites tesco.com and Tesco Direct, and financial services through Tesco Personal Finance. The company has diversified its activities into areas such as retailing of clothing, books, furniture, electronics, software and petrol, internet and telecom services, financial services, music downloads and DVD rental (Tesco, 2012, pp.13-15). Analysis of the Company’s External Business Environment The company’s external environment can be analyzed with the help of SWOT analysis, Porter’s five forces model and the Pestel framework. The analysis of the opportunities and threats of the company will help in the study of its external environment (Rao, Rao, and Sivaramakrishna, 2009, p.186). The opportunities to the company are- The company opened commercial networks in over 620 stores in 2009 of which 435 was international stores. This would help the company in managing its economy of scale and minimizing its systemic risk exposures. The company had over 1million customers in 2010, which gave it an opportunity to attract more customers and reduce the overall cost. The company’s focus on entry in the Indian Market is a strategy for global expansion that will strengthen its global market position. The company expects a rise of ?145billion in 2014 from ?125billion in 2009 in the food retail market segment as even in the times of recession food retail is the toughest segment. The threats to the company are- The emergence of the global financial crisis has resulted in contraction of the economy of UK, which shall have a detrimental impact on the company’s concentration in the UK market. Due to the financial crisis, income has decreased and unemployment has risen. This has adversely affected the buying behavior of the consumers which have led to decrease in sales. Due to the emergence of fierce competition in the grocery market of UK, the company is facing intense competition from its competitors. The analysis of Porter’s five forces model is to be undertaken to study the competitive environment of Tesco Plc. Threat of substitute products and services- In the grocery retail market the threat of substitutes is considerably low for food items and mediocre to high for non-food items. In the food retail market the threat of substitutes is less for the company. Threat of entry of new competitors- In the food retail industry the threat of entry of new competitors is low, thus the company is entitled to less risk. Intensity of competitive rivalry- In the grocery and food retail industry the intensity of competitive rivalry is extremely high. Thus, Tesco Plc faces intense competition from its competitors in respect to product, price and promotions. Bargaining power of buyers- Customers incur very low switching cost in differentiated products, so the bargaining power of buyers is fairly high in the retail industry. Bargaining powers of suppliers- In the retail industry the bargaining power of the suppliers is low since the suppliers don’t want to lose their business contracts with large supermarkets (Henry, 2008, p. 69). The Pestel Framework will help in the analysis of the unpredictable and dynamic environment in which Tesco Plc operates by identifying the factors that would have an impact on the performance of the company. Political- The accession of China into the WTO has removed all barriers in the promotion of free flow of foreign trades, encouraging Western Companies including Tesco to enter into the most profitable market in the world. Thus international business segment of the company has grown. Economic- Economic factors throw an effect on the performance of the company since economic factors are influenced by the buying behavior of the customers. Social- As consumers are becoming health conscious, so their attitude towards food is changing. So Tesco is trying to accommodate the demand for organic food. Technological- Technology has directly influenced the operations, supply chain, and the process of grocery and food retailers. Thus, the operation of Tesco has also been influenced by the changes in technology. Environmental- So as to promote environmental friendliness and abide by the rules of the government, Tesco has introduced Greener Living Scheme, carbon footprint data on products, and green Clubcard points. Legal- Increase in VAT would have an effect on the non-food sectors of Tesco. The operating cost of Tesco would rise if the minimum wage rate is increased (Witcher and Chau, 2010, pp.91-93). Analysis of the Company’s Internal Business Environment The internal environment of the company can be analyzed with the help of the study of the company’s strengths and weaknesses (Griffin, 2013, p.70). The strengths of the company are- Tesco is ranked as the third largest grocery retail company in the world with its operations in over 4,331 stores in 14 countries within USA, Asia and Europe. In UK, Tesco leads the grocery market. The strong financial performance of the company over the years (as depicted in the chart below) have focused and underlined on its strategic capabilities. Yearly growth of Tesco-Key performance Indicators Source: ivoryresearch, 2010 The business strategies undertaken by Tesco aim to provide the customers the best quality products within their affordable capacity and ensure that the product features matches with the customer’s requirements. The company has been successful in its customer retention strategy with the help of its loyalty scheme called Tesco Clubcard. Tesco has also taken various initiatives to promote effective direct marketing and various other promotional techniques. Tesco.com is the biggest online supermarket in the world, with a million customers accessing the company’s online services which have built a strong platform for the increase in revenue. The weaknesses of the company are- As compared to the performance of the competitors, Tesco has not been able to perform well since recalling of its various products have led to a financial loss and thus have lowered the brand image of the company. The major operations of the company are concentrated within the retail sector of UK. This lack of geographical diversification by the company is a major weakness which can lead to several risks or may devoid it from many opportunities (Tesco, 2012, pp. 4-5). Critical Evaluation An assessment of Tesco’s internal environment depicts that the strategic decisions taken by the company have been efficient to utilize its strategic and dynamic capabilities which have contributed to its long-term survival and helped it to meet the demands of the rapidly changing environment. The operations of the company have been well-organized with efficient use of the available resources and core competencies so as to meet the market requirements and avail a competitive advantage in the industry. But the company must implement strategic measures so as to overcome its weaknesses in the long-run which may affect its future operations. The assessment of Tesco’s external environment depicts that the company have been able to make the full utilization of the availed opportunities in the way of its development but the threats of financial crisis have slowed down the growth. The effect of competitive rivals has posed a severe threat on the operations of the company which have bought a competitive edge on the grounds of product, price and promotions. The Pestal Analysis brings out the environmental factors that are responsible for the change in the strategic position of the company. It depicts that the environmental factors have a mixed effect on the operations of the company and the company have undertaken several steps so as to abide by the policies of the government without affecting its operations. Conclusion Implementation of strategies expresses a direction which aims to the fulfillment of a long-term objective with efficient configuration of the resources, capabilities and competencies so as to fulfill the goal and the shareholder’s expectation (Anon, 2009, p.3). The analysis of Tesco depicts the proper implementation of its strategies in its performance as because the company was able to earn growth and also fulfill the expectations of its customers and shareholders. The company faces several threats from the external environment and has some of its weaknesses which it needs to overcome with the help of undertaking future strategies so as to control the impact of such threats and weaknesses on its operations and development. Effective implementation and control of the strategies undertaken against the threats and weaknesses must lead to the elimination of weaknesses since it is under the control of the company, but it may not eliminate the threats fully since it depends on the macro-environment and can only be minimized with efficiency (Herzog, 2010, p.27). References Herzog, C., 2010. Strategic Tools in Dynamic Environment. Germany: GRIN Verlag. Witcher, B.J. and Chau, V.S., 2010. Strategic Management: Principles and Practice. UK: Cengage Learning EMEA. Henry, A., 2008. Understanding Strategic Management. United States: Oxford University Press. Griffin, R.W., 2013. Fundamentals of Management. UK: Cengage Learning. Rao, C.A., Rao, B.P. and Sivaramakrishna, K., 2009. Strategic Management and Business Policy. India: Excel Books India. Anonymous, 2009. Resourcing Strategies. Germany: GRIN Verlag. Tesco, 2012. Annual Report and Financial Statements 2012. [Pdf]. Available at: . [Accessed on: August 13, 2013]. 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