Tesco: Internal and External Analysis

INTRODUCTION

Tesco was founded by Jack Cohen in 1919 when he began to sell surplus groceries from a stall in the East End of London. The first Tesco store was opened in 1929 in Burnt Oak, Edgware, Middlesex. Today Tesco Plc is Britain’s largest retailer by both, global sales and domestic market share with profits exceeding £2 billion.

By 1939 Jack Cohen had opened a number of stores, and backed them up with his creative innovations in warehousing and stock control. At the beginning of World War II jack introduced food rationing before the government did to ensure that everyone received an equal and sufficient amount of food. This capitalism may go some way to explain the fondness that working class people have maintained for the company. It proved that business is most effective when ethics and efficiency are together.

The history of Tesco since the second world war has been one of continuous expansion and success both in the UK and, more recently, in the new EU countries, including Slovakia, Czech Republic, and Hungary (Budapest).­­­­­­­­­­­­

Tesco is now Britain’s largest food retailer, employing over 240,000 people worldwide and has net yearly profits of over £1 billion. the website of this groupis one of the most popular in the UK, with over one million registered users.

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In 2008 it became the world fourth largest retailer, which was the first movement among the top 5 since 2003. Originally specializing in food and drink, it has diversified into areas such as clothing, consumer electronics, consumer financial services, retailing and renting DVD’s, CD’s, music downloads, Internet service, consumer telecoms, consumer health insurance, consumer dental plans and software . Apart from Great Britain, Tesco has its international operations in United States, Turkey, Thailand, South Korea, Slovakia, Poland, Malaysia, Japan, Hungary, France, Czech Republic and recently entered the Chinese market in 2004.

PROFILE

Tesco has been successful in opening up new growth markets in Central Europe and Asia. The proportion of total Group space outside of the UK grew to 38% at our half year. We now operate in Hungary, Poland, Czech Republic, Slovak Republic, Thailand, South Korea, Taiwan and the Republic of Ireland. In December we announced of our intention to develop hypermarkets in Malaysia where our first store will open in 2002

TESCO, PESTLE ANALYSIS

APESTLE analysis of Tescoexamines the main external factors impacting on the company:

There are many factors in the environment that effects the decisions of the managers of any organisation. Tax changes, new laws, trade obstacles , demographic change and government policy changes are all examples of macro change. To help analysis these factors managers can categorise them using the PESTEL model. This classification distinguishes between:

POLITICAL FACTOR

These refer to government policy such as the degree of intervention in the economy. What goods and services does a government want to provide? To what extent does it believe in subsidising firms? What are its priorities in terms of business support? Political decisions can impact on many vital areas for business such as the education of the workforce, the health of the nation and the quality of the infrastructure of the economy such as the road and rail system.

Many governments can be involved. For instance, Tesco might have to deal with British and Columbian politics in regards to its coffee supply.

ECONOMICAL

These include taxation changes, interests, inflation and exchange rates, economic growth, interest rates. As the “Foundation of Economic” book economic change can have a major impact on a firm behavior .

For example:

1. Higher interest rate may deter investment it because it costs more to borrow .
2. A strong currency may take exporting more difficult because it may raise the price in terms foreign currency.
3. Inflation may provoke higher wage demands from employees and raise cost.
4. Higher national income growth may boosts demand for a firm’s products.

Economic factor have large impacts. Fluctuation in the stock market, or tax increase .can seriously affect the bottom line of a company like Tesco.

SOCIAL FACTORS

If there is Changes in social trends can affect on the demand for a firm’s goods and the availability and compliance of individuals to work. In the UK, for example, the population has been ageing. This has increased the costs for firms who are committed to pension payments for their employees because their staff are living longer. It also means some firms such as Asda have started to recruit older employees to tap into this growing labour pool. The ageing population also has impact on demand: for example, demand for sheltered accommodation and medicines has increased whereas demand for toys is falling.These factors can vary from the impact of immigration, to changes in fashion.

TECHNOLOGICAL FACTORS

New technologies construct a new products and new processes. MP3 players ,high definition TVs, computer games, online gambling and computer games are all new markets created by technological advances. Online shopping, computer aided design, bar coding are all improvements to the way we do business as a result of better technology.

Technology can reduce costs, improve quality and lead to modernism. These developments can benefit consumers as well as the organisations providing the products.

Newtechnologieshave had a great impact. For instance, online shopping has become a major factor in Tesco’s recent success.

LEGAL FACTORS

The legal environment in which firms operate. In recent years in the UK there have been many significant legal changes that have impact on firms’ behavior. The introduction of legislation, age discrimination and disability discrimination and greater requirements an increase in the minimum wage for firms to recycle are examples of relatively recent laws that affect an organization’s actions. Legal changes may affect a firm’s costs (e.g. if new systems and procedures have to be developed) and demand (e.g. if the law affects the likelihood of customers buying the good or using the service).

Different categories of law include:

1. consumer laws; these are designed to protect customers against unfair practices such as misleading descriptions of the product
2. competition laws; these are aimed at protecting small firms against bullying by larger firms and ensuring customers are not exploited by firms with monopoly power
3. employment laws; these cover areas such as redundancy, dismissal, working hours and minimum wages. They aim to protect employees against the abuse of power by managers
4. health and safety legislation; these laws are aimed at ensuring the workplace is as safe as is reasonably practical. They cover issues such as training, reporting accidents and the appropriate provision of safety equipment.

ENVIRONMENTAL FACTORS:

Environmental factors include the weather and climate change. Changes in temperature can impact on many industries including farming, tourism and insurance. With major climate changes occurring due to global warming and with greater environmental awareness this external factor is becoming a important issue for firms to consider. The growing voracity to care for the environment is having an impact on many industries such as the travel and transportation industries (for example, more taxes being placed on air travel and the success of hybrid cars) and the general move towards more environmentally friendly products and processes is affecting demand patterns and creating business opportunities.

Large organization has anenvironmentalimpact. For instance, Tesco uses fossil fuel in its transport network. Reducing this demand is a major challenge.

Goals of Tesco

Tha strategy of Tesco includes for a into the low risk areas, less sophisticated retail market where they can easily cop up with the challenges.

The goal of the Tesco achieve by opening small retail market and then switching to the hyper market and thus, increasing the number of customer and ultimately scale up the sale.

MICHAEL PORTERS FIVE FORCES:-

These five forces are very important in doing businesses worldwide. Due to these forces one can analyze the company’s current position and the forecasted position of the company after few years.

1. Bargaining power of supplier:
• Bargaining power of Tesco is low as Tesco buys in huge amounts.
• High number of suppliers all over the UK.
• Reasonable costs are offered by the supplier to gain profits over the bulk of products.
2. Bargaining power of buyer:
• As the popularity of Tesco is increasing the number of buyers is also increasing.
• Variety of products with good quality and in reasonable rate is demanded by the buyer.
• Price is seen as an important part by the buyer.
• Plenty of competitors are in the market offering same products but the prices are having slight differences.
• Bargaining power of buyer is high.
3. Competitive rivalry:
• Main competitors are ASDA, Sainsbury, Marks and Spencer, Waitrose, etc
• Some local competitors as well outside UK.
4. Threats from substitutes:
• Competing with other super markets on the basis of price of the product threats are often low as it drive both the company down.
• Internet shopping is one threat of substitutes.
• Corner shops.
5. Threats from new entrants:
• Increasing number of supermarkets.
• Very tuff competition from local competitors makes very hard for new entrant.
• Every new entrant in supermarkets alters the variety of products as diversified products.
• Big deals offered by the new entrant.

INFORMATION SYSTEMS –

• Supply chain systems create effective stock control and product availability for all our customers.
• Every customer experiences the checkout process, meaning our systems and processes at the tills need to be simple, smart and at the same time sophisticated.
• Then there are new ideas like the ‘Self Scan Checkout’ (which, incidentally, our customers love).Or what about the things you don’t see – like technology which neatly predicts when we need to open more tills, before the queues have even started to form.

Technology is integral to all our business operations – from our numerous internal systems, electronic links with our suppliers and over 5,000 office based users to support – IT is truly a business partner.

EXTERNAL ENVIRONMENT

The Organization that is dealing with external environment should have a purpose and should be made up of people who are grouped in different fashion.

All Organization develop a taxonomic structure that defines and limit the behavior of it’s member .

• Stable Environmental Organizations are mechanistic as they are composed of regulations and procedures framed by authority.
• Unstable Environmental organizations are organic, as they can be altered and are volatile to the changing scenario.

PROFESSIONALISM –

this is necessary because any growing company needs workforce to work in, for this it has to provide training to the amateurs. For this, there are two types of training, low level training for the crew members and high level training for the executives.

SIZE OF THE ORGANIZATION –

the size of an organization depends upon the size of staff, number of stores, and the number of the customers visiting the store. Taking all these issues in the consideration Tesco is the large size organization.

ORGANISATIONAL MINDSET –

These may be of two types of organizational mindset, mechanical and biological.

In mechanical a organization cant take decision instantly for the change while in organic it can be changed in flow of the external as well as internal environment.

SERVICE SECTOR MANAGEMENT –

The management can be related to any type of organization. Service sector is one of the area in which management is compulsion. The management should be taught at the school level.

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