Understanding The Business And Economic Environment Assignment Sample

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Introduction of Tesco plc is a leading multinational retailing business and It provides healthy and affordable food to its customers Assignment

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The UK standard industrial classification (SIC) is the classification of the business based on the economic activity performed by them. A standard industrial code is a four-digit code, the first two digits show the highest level of business classification and the next two digits further explain the identification (Papagiannidis et. al. 2018). The objective of this essay is to give an understanding of the business and economic environment of a company by a detailed study of Tesco plc. According to UK SIC, Tesco’s nature of business is a non-specialized superstore with beverages and food, and its standard industrial code for groceries is 4711. UK government also uses the standard industrial code to arrange and standardize different agencies or private companies based on their key economic data. SIC codes are also useful to the government in the classification of tax.

There are various industries in an economy like construction, education, agriculture, chemical, retailing, etc. This essay majorly focuses on the retail industry of the UK, A retail industry includes all the businesses that deal in selling products to consumers. This industry includes different types of sales and stores such as grocery, department stores, DIY (do it yourself), electrical and independent sales (Santoro et. al. 2018). The retail industry is an important part of the UK’s economy, it contributed 5.2% to the country’s gross domestic product in the year 2020. The sales of the retail industry are increased more than twice, in the last decade. The industry is divided into two major parts that are online and offline(in-store), the online business has grown at a higher rate than the offline business. retail sales by online businesses have increased from 3.4% in 2007 to the 27.9% in the year 2020.

Overview of Tesco plc

Tesco plc is a leading multinational retailing business and It provides healthy and affordable food to its customers. The company also produces home decor products, furniture, and electronic products. Tesco’s registered office in Welwyn city, united kingdom, it is incorporated on 27 November 1947(Chen, 2022). The company is operating its business in many countries including the united kingdom, Hungary, the Czech Republic, Slovakia, etc. In 2011, Tesco’s gross revenue was the third largest in the retailing business and net revenue was the ninth highest in the world. Tesco has its stores not only in the UK but also in Asia and other parts of Europe. Currently, the company has approx. 2318 superstores all over the world and employed approx. 326000 people.

STEEPLE analysis

A STEEPLE analysis is done to understand the external environment of business, here STEEPLE is an acronym which stand for social, technological, environmental, economical, political, legal, and ethical factors:

  •  Social factor analysis

Social factors refer to the factors related to the society in which the company operates its business, it including consumers’ tastes and preferences, opinions, the standard of living, disposable income, and buying habits. In the united kingdom, consumers prefer to do shopping in one go and they buy in bulk (Murashova, 2017). Considering the needs of UK consumers, the company planned to adopt a food cum non-food model. This model will fulfill the needs of the consumer and will benefit the company.

  • Technological factor analysis

In the present time, technological factors are changing faster and they impact the business the most. These factors include patents, automation, research, and development, information technology, and technological development (Richter, et. al. 2022). Tesco has shifted its business online, and now 43% of the total buying is online. The most recent announcement by Tesco is the pair-up with amazon go to make a technology for billing without the cashier. The company is very active in creating and adopting new technology, which is a major success factor for Tesco.

  • Environmental factor analysis

environmental factors are emerging as the most important external factors, it includes factors that harm the environment such as carbon footprints, changes in the global climate, etc (Matovic, 2020). Tesco is reducing the industrial waste which is produced by their outlets and the company also shifting to eco-friendly technology.

  • Economical factor analysis

Economic factors refer to the macroeconomic factors in the economy, this includes inflation, rate of interest, rate of employment, exchange rates, etc. the company should be well informed about the economic changes in the countries in, which it operates its business. Tesco’s major revenue comes from the united kingdom, and any changes in the UK policies will have a great impact on

  • Political factor analysis

Political factors in the external environment of business are current government attitude, rules, and regulations, international trade policies, tax policy, etc. In the case of Tesco, its business is in more than 12 countries in the world. being a global company, its political factors majorly are international political factors that affect the company’s performance. These factors include the rate of tax and economic stability. Tesco is one of the leading companies in terms of employment creation.

  • Legal factor analysis

Legal factors refer to the factors related to the regulatory environment, this includes permits and licenses, industrial regulation, and other legal requirements (Nurmi and Niemelä, 2018). In the retailing business, The company needs to get licenses. Tesco needs to stay updated with the changes in domestic and international legal policies.

  • Ethical factor analysis

Ethical factors refer to all the factors related to the corporate social responsibility of the business, it includes a code of ethics, duties, integrity, making biased free policies, etc. the ethical factors affect the reputation of the business (Çitilci and Akbal?k, 2020). Tesco tries to follow all the ethical codes and manages to satisfy its stakeholders

Demand and supply

Microeconomic factors include the supply and demand of the products, taxes, and regulations on the product. Tesco product’s Demand is affected by various factors such as the price of the product, price of substitute goods, the income of the buyer, taste, and preference, and expectations about the future price of the product. The company’s demand is also affected by the distribution channels and suppliers in different markets.

 The demand curve is a graph that shows the relationship between the price of the product and the quantity demanded at that price (Newman and Ferrario, 2020). The price of the product is drawn on the vertical axis of the graph and the quantity demanded is drawn on the horizontal axis of the graph.

 Tesco demand curve

(Source: Blogspot)

The supply means providing the goods at a different level of price, and the appropriate level of supply of goods and services is very crucial for any business. There is various factor that helps to determine supply, these are the number of supplier in the market, expectation about the future price, price of the substitute and complementary goods, price of raw materials, tax rate and subsidies in the technology, etc (Ge, 2019). The changes in the determinant will cause either a fall or arise in the supply of the goods and services.

The Supply curve is a graph that shows the relationship between the price of the product and the quantity supplied at that price (Wei, 2020). The price of the product is drawn on the vertical axis of the graph and the quantity supplied is drawn on the horizontal axis of the graph.

 Tesco supply curve

(source: Studyrokect)

Competition in the UK market

The UK retail market is known as one of the most challenging retail markets in the world. There are no entry barriers in the retail industry, every company competes with local, regional, and international competitors. Tesco’s top competitors’ list includes H&M, john lewis partnership, Mark and spencer, next, Primark, ADSA, Sainsbury, river island, etc. In this list, ADSA and Sainsbury are the biggest competitors of Tesco (Adewuyi, 2016). In the grocery market, Tesco is the leading company and has shown markable growth over time. But at present, the market shares of Tesco, ADSA, and Sainsbury in the grocery markets are 28%, 16%, and 17% respectively (Teller et. al. 2016). Tesco had oligopoly power in the market but now the competition is increasing.

 fiscal policy is a policy used by the government to manage the flow of money and credit creation in the economy. In this, the government uses its expenditure and tax policies to improve economic growth, correcting inflation or recession. There are two types of fiscal policy that are expansionary fiscal and contractionary fiscal policy. The expansionary fiscal policy is used to correct the recession, in this government increases its spending and reduces taxes which increases the flow of money in the economy. The contractionary fiscal policy is used to correct inflation, in this government reduces spending and increases the tax rates which results in a decrease in the flow of money and consumer spending. The UK government used fiscal policy and cut VAT to increase consumer spending (Bhattarai and Trzeciakiewicz, 2017). this directly impacted the businesses as it increased the buying power of the consumer which boost sales of Tesco.

Challenges

At present, Tesco is still dominating the grocery market, but now facing some big challenges as well. The main challenge faced by Tesco in its operations is a decrease in profit and revenue.

Tesco is facing challenges related to its logistic process, the company is not able to provide quality services to its customer because of the fast changes in the retail grocery industry. This results in a loss of 30% sales value (Rosnizam et. al. 2020). The company is also facing problems related to marketing, strategic management, and finance-related problems. Tesco’s operating income and net income are also decreasing as compared to last year. The company is also facing problems related to human resource management, such as a high employee turnover rate, shortage of skills, improper training, etc.

Conclusion

This essay concluded that the business and economic environment have a great impact on the performance of the business. A business needs to keep scanning its external business environment and make changes in the business to survive in the competition. Tesco plc is one of the multinational companies which is scanning its environment continuously and taking the right decision but still faces some challenges like employee retention, poor logistic management, etc. a company’s demand and supply are also determined by the market forces so it’s very crucial to keep updated with changes happing in the environment to improve company performance.

References

Richter, S., Szarka, N., Bezama, A. and Thrän, D., 2022. What Drives a Future German Bioeconomy? A Narrative and STEEPLE Analysis for Explorative Characterisation of Scenario Drivers. Sustainability14(5), p.3045.

Murashova, O.V., 2017. Environmental coThe environmentalstainable development. In ?????????? ???????? ????????????? ???????????? (pp. 71-73).

Çitilci, T. and Akbal?k, M., 2020. The importance of PESTEL analysis for the environmental scanning process. In Handbook of Research on Decision-Making Techniques in Financial Marketing (pp. 336-357). IGI Global.

Newman, M. and Ferrario, C.R., 2020. An improved demand curve for analysis of food or drug consumption in behavioral experiments. Psychopharmacology237(4), pp.943-955.

Wei, C., Asian, S., Ertek, G. and Hu, Z.H., 2020. Location-based pricing and channel selection in a supply chain: a case study from the food retail industry. Annals of Operations Research291(1), pp.959-984.

Chen, J.J., 2022. Tesco Plc. In International Cases of Corporate Governance (pp. 27-44). Palgrave Macmillan, Singapore.

Santoro, G., Fiano, F., Bertoldi, B. and Ciampi, F., 2018. Big data for business management in the retail industry. Management Decision.

Rosnizam, M.R.A.B., Kee, D.M.H., Akhir, M.E.H.B.M., Shahqira, M., Yusoff, M.A.H.B.M., Budiman, R.S. and Alajmi, A.M., 2020. Market opportunities and challenges: A case study of Tesco. Journal of the Community Development in Asia (JCDA)3(2), pp.18-27.

Teller, C., Wood, S. and Floh, A., 2016. Adaptive resilience and the competition between retail and service agglomeration formats: an international perspective. Journal of Marketing Management32(17-18), pp.1537-1561.

Papagiannidis, S., See-To, E.W., Assimakopoulos, D.G. and Yang, Y., 2018. Identifying industrial clusters with a novel big-data methodology: Are SIC codes (not) fit for purpose in the Internet age?. Computers & Operations Research98, pp.355-366.

Matovic, I.M., 2020. PESTEL analysis of external environment as a success factor of startup business. ConScienS, p.96.

Nurmi, J. and Niemelä, M.S., 2018, November. PESTEL analysis of hacktivism campaign motivations. In Nordic conference on secure it systems (pp. 323-335). Springer, Cham.

Bhattarai, K. and Trzeciakiewicz, D., 2017. Macroeconomic impacts of fiscal policy shocks in the UK: A DSGE analysis. Economic Modelling61, pp.321-338.

Adewuyi, A.W.A.W., 2016. Ratio Analysis of Tesco Plc Financial Performance between 2010 and 2014 in Comparison to Both Sainsbury and Morrisons. Open Journal of Accounting5(03), p.45.

Ge, D., Pan, Y., Shen, Z.J.M., Wu, D., Yuan, R. and Zhang, C., 2019. Retail supply chain management: a review of theories and practices. Journal of Data, Information and Management1(1), pp.45-64.

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