BMA4000-20 The Business Environment Assignment Sample

Introduction to the Company BMA4000-20 The Business Environment Assignment

Tesco is amongst the leading retailing companies in the United Kingdom, which has its operations both nationally and globally. Tesco PLC was started in 1919, and its operational office is located in Welwyn Garden City England with its branches in the food sector, clothes, electronics and even the financial sector. As a market giant Tesco now has over 400,000 employees and thousands of shops all over the world to retain the status of one of the most successful retailing companies in the world; innovations and adaptability in a very competitive environment a key to such success.

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Purpose

The objective of the current presentation is to review elements of Tesco’s external business environment during the past five years with the likelihood of future effects being considered (Morrison, 2020). To assess the key external environmental factors that impacted Tesco this study endeavoured to use the PESTLE model which includes; Political, Economic, Social, Technological, Legal and Ecological (Boddy, 2019). Moreover, we will analyse how these factors can potentially affect Tesco’s strategic choices in the future, concerning its current standings in the international market for retail.

External Environment Analysis

Table 1: PESTLE Analysis

Political Environment

Brexit is a notable factor that has influenced Tesco since it affects the company’s political environment. Since Brexit, Tesco experienced problems related to the supply chain including new trade tariffs, and import/export restrictions (Griffin and Pustay, 2015). A report by The Guardian points out that during 2021, Tesco recorded a 20% rise in the logistics cost occasioned by increased paperwork and disruption of transport occasioned by Brexit. New immigration policies also brought about a labour deficit in industries that relied on overseas employees, for example, supply chain industries like countering agencies and some warehouses (Griffin and Pustay, 2015). In other words, the future adjustments of trade relations through political changes or potential changes in the relations between the EU and the UK may either improve or worsen these obstacles.

Economic Environment

The economic climate in the UK has been responsible for the company’s performance, especially in Tesco’s case. The inflation rates have been on the rise with some countries experiencing inflation rates of up to 10% (Forbes, 2023). However, operation costs increased by 4% in 2022 as estimated by the Office for National Statistics: At the same time, Tesco had to keep abreast of the prices set by competitors like Aldi and Lidl to do not lose its clients. The Financial Times stated that Tesco’s revenues were up by 6% in 2022 (Forbes, 2023), however, many of these sales figures have been largely negated by a range of increasing costs such as energy costs and costs of supplies.

Social Environment

Other social changes have affected Tesco's strategic management and these include; Another area that has significantly impacted Tesco's strategic management is e-commerce (Morrison, 2011). There is increasing demand for almost everything in the global market and specifically in the United Kingdom hence the need for Tesco to embrace e-commerce and ensure it comes up with effective strategies to manage its online business (Morrison, 2011). The ongoing COVID-19 pandemic significantly brought forward the growth of the online grocery market where Tesco for instance had realised a 77 percent growth of online sales in 2020 as revealed by Statista. Consumers are also focusing on environmental conservation and this has informed Tesco’s decision to form a sustainable product line (Morrison, 2011). Regarding the social aspect, Tesco needs to follow the trends of society and customers; In 2021 the company committed to reducing by 50% the use of plastics in its packaging materials by 2025.

Technological Environment

Another strategy that Tesco has adopted is the use of Technology, where it has dedicated a great deal of focus towards the incorporation of Artificial Intelligence, Automation, and digitalization among others (Ogunbiyi, Bala and George, 2023). For instance, in 2022 Tesco successfully implemented artificial intelligence in terms of forecast and supply chains for effective plans and reduction of wastage, therefore enhancing operations. Furthermore, investment in automated checkout technologies in stores has cut costs associated with labour while improving the overall experience of the shops (Needle and Burns, 2019). According to the report by Reuters, Tesco’s capital expenditure which was on technology projects stood at £1 billion in the year 2021.

Legal Environment

Legal pressures like GDPR have put pressure on Tesco to increase the strength of its data protection. Otherwise, it may impose a high penalty where the firm has spent significant resources on technology to address privacy issues surrounding the data (Needle and Burns, 2019). Furthermore, COVID-19 caused the emergence of new restrictions in terms of health and safety measures that were necessitated in Tesco and compelled the company to enforce strict standards among its employees and its clients.

Ecological Environment

Environmental sustainability can therefore be said to be a strategic theme at Tesco. In 2021, the company announced that it has pledged to become a Net zero Carbon Business by 2050 and that since the year 2017, the company was able to cut its carbon emission by 41% (IEA, 2021). In addition, Tesco has recently engaged in measures to counteract food wastage such as collaborations with food-rescuing organisations and the creation of the so-called ‘wonky’ vegetables that are inappropriately shaped but sold at a cheaper price (Fankhauser et al., 2021). All these falls in tune with the consumer trends as well as the degree of regulation for environmental issues like the green deal which was recently passed in the UK for the enhancement of stricter environment legislation on retail.

Future Trends

Analysing the following external environment factors, several factors will influence Tesco’s strategy in the future (Sloman and Jones, 2017). In political factors, it was assessed that the nature of trade relations between the UK and EU as well as new policies that may be imposed in the future may either enhance or deter trading activities for Tesco (Sloman and Jones, 2017). In the context of the economic considerations, with a prospect of recession and increased interest rates, the consumers’ expenditures may be lowered and thus put pressure on Tesco to reconsider its stock pricing and cost control considerations (Baines, Fill and Rosengren, 2016). Economically, the consumer demand for e-commerce and sustainable products is expected to continue to rise hence forcing Tesco to expand its e-commerce platforms as well as extend its range of ethical products (Baines, Fill and Rosengren, 2016). There will also be an increase in artificial intelligence and automation in operation to enhance efficiency and superior customer services that will embrace technology.

Reflection on group work

The group project was time-consuming and all the students engaged in the project had to collaborate and work as a unified team to research and present the findings of the external business environment analysis for the team (Johnson et al., 2014). Such resources as Google Drive as well as MS Teams helped in sharing resources, coming up with the meeting schedule and implementing mechanisms for fairness (Johnson et al., 2014). For instance, one member concentrated data on the economic factors while another identified technological factors working for Tesco.

Conclusion

Therefore, Tesco’s external environment has been established by major changes in PESTL&Es factors in the last five years. Brexit, cost, increased regard from e-commerce, technologies and sustainability issues have forced Tesco to transform its operation and strategic direction frequently. Future possibilities include economic fluctuations, and the rising popularity of green products, among other factors which will shape the future strategic direction of the company. Since these external forces are outside Tesco’s core competencies, the company is in a good place to sustain its market dominance and assertiveness in responding to these forces that defines its future.

References

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• Ogunbiyi, V., Bala, G. and George, A. (2023). Exploring Artificial Intelligence Application and Implication: Evidence from the UK Retail Industry. IOSR Journal of Business and Management (IOSR-JBM), [online] 25(9), pp.1–10. doi:https://doi.org/10.9790/487X-2509050110.
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