The main objective of this study is to describe the broad business environment and analysing how these factors is going to affect the organisation or business as a whole. PEST analysis is used for this study including legal and environment factors. The company selected for this study is Tesco. Tesco is the largest retailer in the United Kingdom with fully-fledged markets and secured resources.
There are several factors which influence business in the long run. This project aims to identify the main concepts and key environmental factors which affect business. The business organization that decided to study during the course of the assignment is Tesco. A business should function within the formal and informal codes and ethics and morals of an organization. Global business has to grow and survive according to the tunes and necessities of the world economy. Mutual competitions, continuous up gradation of quality and fast growing world economy have been the features of global economy. The nature and quantum of global business in fact are the indicators of economic development across the countries. Efficiency is the key word of globalization. Global business has given an impetus to bring in efficiency in all sectors in order to survive the competition. Thus quality and efficiency are the key issues of survival in international business.
Technological changes in every field are so fast that they govern the quality of product and services and they decide the investment trends and they govern the cost of production by governing the growth of global business itself. Marketing is governed by two sets of factors. They are internal controllable factors and external controllable factors. Internal controllable factors such as product design, product quality, price, promotional measures, human resources, technology adopted, financial resources and physical resources of an organization. The technology could be updated by joint venture; quality of product may be improved to international standards by an imported design. Other set of factors such as set of external environmental factors is an important segment of trade and commerce. Such environmental factors include economic, demographic, political, legal and cultural component of the countries involved and this lead to affect imports as well as exports of a country. The global business needs a strong diplomatic support at many stages by respective governments for negotiations, policies as well as settlements. Globalization is based on principles of free trade which emphasis the survival of quality conscious efficient manufacturer and supplier. It automatically removes inefficient, unethical supplier from the global scene.
Business environment can be any thing which surrounds the business organization. Business Environment consists of all factors that in one way or other way affecting the organization decisions. There are external an internal factors to be considered while taking decision. An internal factor consists of all factors with in the organization. It includes management, employees, materials and finance. External environment of an organization involves both macro and micro factors. Macro factors can affects the business indirectly. Macro factors are political, environment, socio-cultural, technological, ecological and legal factors. Micro can affect the business directly and micro factors involve customers, and competitors. Thus business environmental factors affect company decisions, strategies, operations and overall performance of the organization. In short, Business environment is defined as:
“Business environment is a set of political, economic, social and technological (PEST) forces that are largely outside the control and influence of a business and that can potentially have both a positive and a negative impact on the business.” (Kotelnikov 2008).
Tesco is a public limited company of UK and there are so many advantages as well as disadvantages of forming a public limited company. Raising of capital from the public is the main feature of public limited company and its expansion procedure plays a crucial role in competitive market. They beat many of their competitors in the market with their innovative approach. Its main operation related to the food retailing to the United Kingdom, Republic of Ireland, Hungary, Poland Slovakia, Thailand, South Korea, Taiwan etc. Tesco group diversified its activities into different field also such as prosperity investment, prosperity development and other activities. Tesco is having long term strategy in its path and its activities are directed towards its goal.
Tesco made strong efforts to contribute to overall economic growth and development in all its locations across the globe. Tesco is proved to be an effective in the role of providing employment opportunities and also supplying goods at the affordable prices which is essential for the community to grow and expand. Tesco was able to influence society in many ways due to its size and scale of operations. Tesco has adopted several measures to fulfill its social responsibility towards society by being it as a role model by preserving nature by several methods such as recycling of waste and their effort to reduce the wastages. They also provided fund for charity and promoting education in the country. They also gave their full effort to provide healthy food for their customers at reasonable prices in UK as well other countries where they are operating.
Tesco made strong efforts to contribute to overall economic growth and development in all its locations across the globe. Thus Tesco is proved their important role in the society by providing employment, supplying goods at affordable prices and giving the community opportunities to expand and grow. The company is committed to organic growth with domestic and international markets. Tesco is having several shareholders who plays a major part in their business activities and is widely using advertisements in newspaper and television. Retailing is a labour intensive industry, and Tesco has recognised that labour markets are tightening.
Competition will increase amongst retailers to recruit and retain employees with the skills appropriate to their business. Their focused strategy of providing exceptional value and choice for customers ensures the growth of their market share. With the changing habits of the customers Tesco provides them with new products and services are gave importance to market led strategy. Tesco has long term plans to meet the company’s target and objectivities with in the stipulated time. Their activities are planned accordingly to develop, identify the opportunities, building team and working towards the desired goal. It is supposed to meet about 10 million customers every week and ensuring that each customers need are met with full satisfaction. For fulfilling the customer need they are very much concentrate on providing the customer service activities. They also have a highly trained customer service representative in their stores to meet the queries of the valued customers. Main objective of the Tesco is to attract the existing customers as well as probable customers to increase their market share growth..
The responsibilities of the Tesco to the customers are most centred on the provisions of products and services that suit their needs. Thus the organizations have employed a number of ways to meet the requirements of their valuable customers. Tesco has wide range of stakeholders groups all with their own expectations and this will enable the evaluation of stake holder’s engagement and responsibilities have a lot to do with the success of the organization. Innovations are the most significant tool for the modern economy as it has marked the best outstanding feature for the development of a business. Tesco is adopting innovation in the area of customer service, reducing wastages and expanding its operating and these activities are carried out regularly from the starting year of Tesco. Earlier it was a private company and later stages in its developments made it as public limited company.
Environmental factors which affect the business are analysed. Environment consist all factors either connected directly or indirectly to the organisation which need to study in detail to make strategic decision. Secondary data is used as information for PEST Analysis. The environment of Tesco is analysed by using PEST and PESTLE analysis.
PEST (political, economic, social, technological) analysis identifies the four major external factors which influences the organization. “PEST analysis is a technique used to identify, assess and evaluate external factors affecting the performance of an organisation. A PEST analysis is undertaken to help an organisation gain an understanding of the wider business environment and may be carried out as part of an ongoing process of environmental analysis or scanning.” (Carrying out a PEST Analysis. (Checklist 196) (Political, Economical and Social Technological). 2005).
PEST analysis is an analysis of the external macro environment which provides information for strategic decision making. Such external factors are usually beyond the firms control and termed as threats of the firm. PEST analysis is very essential for evaluating the feasibility of a new product and analyzing the overall organizational strategy. PEST factors of internal environment factors form strength and weakness of the firm and external factors of the firm can be considered as opportunities or threat of the firm in SWOT analysis. The main objective of the PEST analysis is to make vision, direction and growth by effective strategic decision.
Main advantages of PEST analysis is that it provides better understanding of wider business environment such as threats and opportunities. It helps to make strategic planning and decision making. Awareness of threats helps to minimise the possible losses and awareness of opportunity is helping to utilise the same. Finally PEST helps in the organisation to anticipate the future trends or difficulties and helps to take the necessary measures at the appropriate time.
Political factors consist of all government rules, policies, regulations and legal issues. It involves all formal and informal rules and regulation under which an organization must operate. Political factors are considered while taking business decision and the factors to be identified includes environmental regulation, employment laws, taxes, trade restrictions, tariffs, political stability, and various Government policies which directly or indirectly affect business.
Tesco needs to adjust with the regulatory laws and practice. Ban of smoking cigarettes in public will going to affect the retailers in future. Company might be affected by political players across the world. “For instance, Tesco might have to deal with British and Columbian politics in regards to its coffee supply.”
Economic factors affect the general purchasing power of the potential customers. General economic growth, exchange rates, inflation rate, interest rate, taxes etc can affect the business along with organization cost of capital.
Economic factors can create wide fluctuations in the social market and can seriously affect the retailers including Tesco. As a retailer, Tesco is largely affected by the buying power of the consumer. General economic standards of the country will have a strong impact on the company like Tesco. Another factor which affect directly to Tesco is increase in the fuel rates as the Tesco uses its own vehicles to transfer goods to its various locations.
Social factors consist of demographic and cultural aspects of external macro environment. “Culture affects the way consumers think and use certain products.” (VUSSC/Content/Entrepreneurship/Starting Up a Business/What Factors Influence the Business?).
These factors are playing a major role in buying behaviour of the customers as it usually affects the needs and size of the potential market. Social factors include attitude of customers in areas such as health, career, and safety; rate of growth of population; age groups so on. “Businesses interact with the wider society they are part of. Businesses are affected by society, for example in the kinds of goods and services they are expected to produce and businesses affect society by their activities. It is a two-way process.” (Entrepreneurial Women Failed by ‘Sexism’. 2001).
Tesco was able to influence society in many ways due to its size and scale of operations by encouraging its employees and customers to become socially responsible.
Technological factors are playing major role in cost reduction measures, technical know- how reduces entry barriers and also influencing outsourcing decisions. It consists of all factors used for manufacturing goods and services. Technological factors involve Research and Development activity, rate of technological change, automation, technology incentives etc. “Advances in technology can have a major impact on business success, with companies that fail to keep up often going out of business.” (Marketing and Competitive Intelligence FAQ: Business Environmental (PEST) Analysis. 2008).
Recent technological innovation and developments are enabling to get a competitive advantage to the firms. Innovation always provides new business opportunities for the firm. Tesco proved to be successful to sustain its growth for a long period with forecasting, better management and implementation of new methods. It is important for application of innovation in an organization and how the organization manages the changes that occurred in the organization due to the implementation of innovation. “The innovation of products, services and processes and the formation of new business enterprises are crucially important to every economy. Innovation and new business development can be initiated by independent individuals or by existing enterprises.” (Organization Studies: Corporate and Entrepreneurship and Innovation. 2008).
The change can create problems for the managers and the effective management of change is also focused. Acceptance of new technology by consumers and adoption of new technology by organization is creates wider scope for further advancement in the technology development. Tesco introduced online shopping which is proved to be successful in the business expansion. The Tesco Clubcard has proved to be an important and have turned out a successful innovation can result in achieving an organizations market leadership. The most appropriate example of on market orientation and risk taking. “A firm’s ability to design and adjust its internal variables to take advantage of opportunities offered by the external environment, and its ability to control threats posed by the same environment, determine its success.” (Global Business Environment. 2007).
PEST analysis is helpful in identifying the general business environment which affects the organisation. In addition to this, legal and environment can also be analysed for further detail study and this study is commonly referred as PESTLE analysis or Porter’s five forces analysis.
Legal and Environment factors
Tesco strives to provide work environment that supports productivity, dignity and self-esteem and the pursuit of personal goals. Tesco do not discriminate on the basis of race, colour, place of origin, religious belief, physical or mental disability, age gender, marital status, family status or source of income and they endeavour to ensure that all their employees are treated fairly in all aspects of the employment relationship including performance appraisals, compensation, opportunities for advancement and disciplinary matters. Their employment policies and procedures providing equal opportunity and fairness in employment decisions were highly appreciable.
Tesco is committed to conducting business in an ethical and socially responsible manner.
This relates to all aspects of their business, treating employees, customers, suppliers and shareholders in a fair and honest manner and ensuring that there are constant and open channels of communication. Tesco wins environmental leadership award for the year 2008. (Caring for the Environment. 2008). Environmental conservation was of particular concern to Tesco, as it is not always align with economic goals. However, the company committed itself to maintaining a healthy environment and made all employees take an active role in its environmental initiatives. Tesco also launched its energy awareness campaign in 1996. The company’s staff is expecting to take active participation in it. Managers in all Tesco stores, depots and offices monitored energy use and worked towards reducing waste thus, Tesco reduced the energy consumption. (Caring for the Environment. 2008).
Tesco firmly believed that policies that were harmful to the environment would not project the right image of the company, and would cause damage to the company, its customers and society. (Caring for the Environment. 2008). Tesco has adopted several environment conservation activities under three categories that is, climate change, wastage recycling and sustainability Climate change is the measures adopted to reduce the carbon emission. Recycle of wastage by wastage recycling method with following principle of “reduce, re-use and recycle. Tesco targets to minimize the amount of landfill by minimising packaging of products with fewer carry bags. Sustainability in its activities is adopted by collecting from legal and sustainable sources.
For example Tesco is committed to purchase timber and it products from only legal and sustainable sources. Similar activities are adopted for collecting seafood, palm oil etc. Biofuel are widely marketed by Tesco to reduce the ill effects of carbon and states that” Our commitment, commercial strength and relationships with millions of customers enable us to lead our sector towards sustainable consumption, by reducing our direct environmental impact and encouraging suppliers and customers to do the same.” (Caring for the Environment. 2008).
In this study, it is found out that Tesco is committed towards society and is fulfilling its responsibility towards society which is helping the company in many ways. Besides, Tesco is having continuous growth through its innovation activities and customer friendly. It is helping Tesco in many ways as it acts as good advertising to its brand. But economical factors are affecting the retail sector badly including Tesco. It is seen that increase in the inflation rates, and interest rates, taxes etc are affecting the purchasing power of the consumers and is threat to the firm. To some extent political factors are also affecting the company along with social factors.
Demographic changes and consumer attitudes will affect product or industry or business to a large extent. Environmental issues can be arise when proper care in not taken especially environment polluting factors. Tesco has adopted several measures to preserve the environment including its own vehicle with Biofuel. It has dual advantages to the company that is it helps to reduce environment pollution and is economical. In addition it saves time and ensures timely supply of goods.
Conclusion and recommendations
Environment analysis is essential for making decisions for the future. It always provides details in to opportunities available in the market situation and upcoming threats can also be analysed and preventive measure can be taken at the appropriate stages to overcome from the problems. Some of these factors are uncontrollable but steps can be taken in advance to minimise the adverse effects if PESTLE analysis is adopted. To minimise the adverse affect of economical factors, it is suggested that reducing expenses on marketing activities will be beneficial to the company as it is not going to generate much income in the short term due to low purchasing power of the consumers. Regional, national and political factors have a great role in business environment shaping. It is important to reduce the expenses in the inappropriate times. Innovation can be adopted further for improving the services and location can be increased wherever possible especially the location which suits to the company. Life style changes and changes in the attitude will affect the business environment attitudes.
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