The external environment
According to Micheal Porter external environment is something on which firms have very little control on, changes occur due to external factors are normally hard to predict and hard to eliminate if it persists any major downfall. For example changes in legislation, natural disaster, terrorism are some of the examples where firms can't control the damage before it occur. However, there are number of matrix and models are used to judge changes occur due to external environment. Porter five forces, PEST analysis etc are some of the models used to understand and if possible take precaution.
Common man is under tremendous stress as a result of numerous economic hardships including high unemployment, inflation, scarcity of essential commodities, and limited ability of the state to target welfare services. Bernanke and Lown (1991) define a credit crunch as a decline in the supply of credit that is abnormally large for a given stage of the business cycle. Credit normally contracts during a recession, but an unusually large contraction could be seen as a credit crunch.
Low interest rate
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Low interest rate provides opportunities as well as some treads for Tesco. The Bank of England has cut interest rates to the lowest level seen in its 315-year history (Atkinson, 2009). First of all low interest rate give opportunity for consumers to borrow money on very low rate which means that interest payment is within the range of common people. Similarly, mortgage payment will be reduced unless it on fixed basis that give people more power to save money and spending. On the other hand, it also provide opportunity for tesco to take some sum out of that money save through low interest rate but they have to be very careful and specific to find out which product will consumer use their money.
From the profit point of view, sale is directly proportional to profit which means if sale will increase profit will automatically increase as well. However, profit margin can be decrease which can be overcome by increasing sales. Another great opportunity for tesco is to increase debt financing for their business and to open new stores. Low interest rate also gives tesco to maintain the level between equity and debt financing. It also gives an edge to invest in project which project higher rate of return. Consequently, share value will also increase when sale start increasing, due to the reason that divided payment would be high.
In terms of shareholders rising sale increase the value of the company will increase which ultimately benefited the owner. In the internal company structure manager got more power to promote certain product and to hit the target which give them benefit in terms of bonuses. Trade union can also sneak in and ask for the pay rise for workers. Consequently, supplier will have more order from tesco so they can increase their sale and profit. From the social prospected, the whole of community have more access to the general product and there will be more local tesco stores.
When we look at the bigger picture the biggest beneficiary of low interest rate is the government they can claim more taxes and generate more in revenue. Past decade proved that china is an emerging power where labor is cheap and most of tesco suppliers are from china which means government can claim huge amount of money in term of excise tax. Similarly, increase in VAT can also been possible because consumer have money to pay the value added on product of their choice.
Impact of Recession on Tesco
Organization generally drop sales during the time of recession some of the factors are unemployment in the country, household income is very low, inflation etc, people only spend money on necessary products. Therefore tesco have to cut down their range especially finest range because people don't have money to spend on luxuries. Retailers profit normally fall in recession time as we have seen in recent time. Woolworth is a prime example what recession can cost a company. Profits usually shrink during recession as people cut down their spending and due to the uncertainty in the system and very less economic activity.
From the investment prospective tesco still hold the key and they are expanding in a steady pace, china becomes their next economic hub. On the other hand revenue growth in recession time is low. Therefore picking the option of investment is not easy and some contracts are made before the recession that needs to go on.
Tesco still made some profit during recession although it was only 3.5 percent but in this year they made 10% growth on what they made last year. Similarly there share price jumped 4.88 percent despite recession and Tesco's share price jumped 4.88 per cent to 348.30 pence in afternoon deals, bucking London's FTSE 100 index of leading companies which was 1.32 per cent lower at 3,938.32 points.
One thing which is very important during recession is the job security as the business activities are very much cut down. Responsibilities of trade union are also come into question because there were dispute between workers and the managers about pay cut, job loss etc.
Biggest setback is for the government because revenue growth is low. People don't normally earn big so they give low income tax. Similarly revenue collected through national insurance is low as well as workers have a pay cut or hours cut.
Impact of fall in value of pound
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One of the major impact is import will be expensive as the time value of money is change which resulted in price rise. Most damage is on overseas sales for example tesco Tesco's total U.S. sales were 208 million pounds, about $304 million, last year and same store sales enjoyed a strong advance at 30 percent, which reflect a growing familiarity with Fresh & Easy stores among consumers. In current crises Tesco, which spent about 300 million pounds, about $438 million, on capital expenditures in the U.S. last year as it was suffering 148 million pounds in real losses.
On the other hand, it can be seen as investment opportunity for overseas investor because the pound is cheap so we can see more and more shareholders from overseas. One of the set back is Metro, which has overtaken Tesco to become the world's third-biggest retailer due to the weaker pound, fourth-quarter sales fell 3.4 percent to 11.9 billion pounds (Porter, 2010).
Major benefiter of falling pound is the supplier who can sell its god all over the world, because UK products become cheap. From the government point of view its not a good sign as that mean there will be less revenue on duties of tobacco and spirit etc.
Impact of low interest rate on CRUK
CRUK has more chance to generate more money in term of donation because firms and people had saving due to low interest rate. However, shop sell can fall because people can go to big brands as they have save money through low interest rate. It is important that CRUK should focus on different product such as greeting card or gift vouchers. On the other hand it provide opportunity for CRUK to fulfil there long term objectives: raising fund to support its scientific aims, and raising awareness of the charity.
Stake holders have more money to spend on more projects. However, manager has to manage more project as group start expanding and investing in different projects. But they don't have to look for the volunteers as people were already to invest in good causes. There are also chances that they will donate more clothing to the charity organizations. The whole of community can take benefit of this and from government pint of view they don't have to use huge sum of tax payer money in treating long term care of terminally ill if more treatment are successful.
Similarly, more chances of survival for user as if there is more treatment available and the waiting list is shorter.
Impact of recession on CRUK
Major impact is the fall of donations because people can hardly fulfill their needs in recession time. Unemployment rate is high in recession therefore people don't donate as much as they were before. Good sign is sales in shop will rise but the clothing which normally come from public is hard to get. On the other hand chances are they don't donate their good clothes so the quality would be a big issue. Cancer Research UK is forecasting a 45% drop in income in 2009 compared with 2008.
Trustees has very important duty in recession time to chose between treatment or research because they don't have enough fund to fulfill both. Volunteers May have criticism over rising prices as demand goes up but supplies go down due to the reason People will make their existing clothes last longer and so the supply of second hand clothes may fall. Some people will not donate and stop their direct debits if they are out of work. Community Generally worse off if a charity starts to suffer as the community is made up of Workers, suppliers, customers, service users.
Government responsibility would be high and they may be asked to donate more money to CRUK due to a lack of private donations. Major effect is on users as People will be on waiting lists much longer which may result in a large increase in mortality rates. There may be less health information available.
Impact of fall in value of pound
Donations may fall as we rely heavily on imports if import prices rise consumers will have less money to spend. Sales in shop can increase as there will be very less cheap product available in the market because UK relies on import and import will be expensive because of devaluation of pound. Imported equipment will rise meaning the limited pot of funds has to go further.
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Trustees have to make difficult choices on how funds are allocate or spent. It is an important decision because both research and treatment has their own significance. Managers have to make limited resources stretch even further. They would rely less on overseas research given the cost. Volunteers may have criticism over rising prices as demand goes up but supplies go down because people will make their existing clothes last longer and so the supply of second hand clothes may fall.
Major beneficiary is community and government may see more jobs created as imports become more expensive and receive more taxes and tariffs from imported goods.
For the following year tesco have to invest in value product which people can buy easily. Low interest rate means tesco can borrow money from bank on low interest rate so they can come up with some new ideas and they can expand their business also. Business activities should be very watch full as the stability is not yet achieved. They don't need to go to the real estate market because it is the most uncertain market at the moment. They should focus on food and items of daily use.
Tesco will have to remains heavily focused on delivering growth, offering significant scale opportunities across its estate. Tesco's strategic goal is to develop a winning convenience store proposition. Focusing on the goal, it refined its tactics when the first trial stores didn't fully deliver, ultimately achieving their objective. They don't need to go in real estate as it is the most uncertain market at this point of time. Similarly Tesco has to be very careful in stocking the stuff as the price are not fixed and fluctuation can seen in coming year. Another key element would be to diversify the risk and work in different field.
Financial activities would be to record all the business transactions this means that they record in their schedule all the expenses that have been paid and all incomings. They also make sure that each department does not spend more than it has been allocated. They should also control the finances and cash flow so tesco stays reliable.
The human resource in an organisation is the second most important department, simply because this is where all the new employees are chosen from. The main purpose of the Human Resource department is to recruit, select, train and develop staff. This means that they have to find the right people at the right place at the right time. The Human Resources department also has a legal obligation, and that is to keep all records that they have in their possession confidential. This means that they have an obligation to stand by the data protection act.
The Marketing department would be responsible for: Marketing Research this means when an organisation collects data by doing a questionnaire, and also they do presentations to tell everyone what new ideas they have come up with to make money.
Can enjoy huge sum of profit because stability is coming back and the credibility of tesco is very much in favor. Sales can increase because people need best value in cheap price, tescos track record and the current strategy suggest they will explore new market so managing responsibilities can be complicated as they have to understand different cultures and diversity can be an issue. Worker and manager need to have a very good working relationship to go through period of uncertainty.
Bernanke, Ben S., and Cara S. Lown (1991), "TheCredit Crunch," Brookings Papers on Economic
Activity, no. 2: 205-47.
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